Correlation Between Erie Indemnity and Fanhua

Can any of the company-specific risk be diversified away by investing in both Erie Indemnity and Fanhua at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Erie Indemnity and Fanhua into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Erie Indemnity and Fanhua Inc, you can compare the effects of market volatilities on Erie Indemnity and Fanhua and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Erie Indemnity with a short position of Fanhua. Check out your portfolio center. Please also check ongoing floating volatility patterns of Erie Indemnity and Fanhua.

Diversification Opportunities for Erie Indemnity and Fanhua

-0.4

Correlation Coefficient

Erie Indemnity  Fanhua

Very good diversification

The 3 months correlation between Erie and Fanhua is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Erie Indemnity and Fanhua Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fanhua Inc and Erie Indemnity is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Erie Indemnity are associated (or correlated) with Fanhua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fanhua Inc has no effect on the direction of Erie Indemnity i.e., Erie Indemnity and Fanhua go up and down completely randomly.

Pair Corralation between Erie Indemnity and Fanhua

Given the investment horizon of 90 days Erie Indemnity is expected to generate 0.35 times more return on investment than Fanhua. However, Erie Indemnity is 2.89 times less risky than Fanhua. It trades about 0.09 of its potential returns per unit of risk. Fanhua Inc is currently generating about -0.12 per unit of risk. If you would invest  36,046  in Erie Indemnity on August 30, 2024 and sell it today you would earn a total of  7,766  from holding Erie Indemnity or generate 21.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	80.16%
Values	Daily Returns

Erie Indemnity  vs.  Fanhua Inc

Erie Indemnity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Erie Indemnity has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's forward indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Fanhua Inc

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Fanhua Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly unsteady basic indicators, Fanhua demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Erie Indemnity and Fanhua

The main advantage of trading using opposite Erie Indemnity and Fanhua positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Erie Indemnity position performs unexpectedly, Fanhua can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Fanhua will offset losses from the drop in Fanhua's long position.

The idea behind Erie Indemnity and Fanhua Inc pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Fundamental Analysis module to view fundamental data based on most recent published financial statements.