Correlation Between Arthur J and Erie Indemnity

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Can any of the company-specific risk be diversified away by investing in both Arthur J and Erie Indemnity 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 Arthur J and Erie Indemnity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Arthur J Gallagher and Erie Indemnity, you can compare the effects of market volatilities on Arthur J and Erie Indemnity 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 Arthur J with a short position of Erie Indemnity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arthur J and Erie Indemnity.

Diversification Opportunities for Arthur J and Erie Indemnity

0.88
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Arthur and Erie is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Arthur J Gallagher and Erie Indemnity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erie Indemnity and Arthur J 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 Arthur J Gallagher are associated (or correlated) with Erie Indemnity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Erie Indemnity has no effect on the direction of Arthur J i.e., Arthur J and Erie Indemnity go up and down completely randomly.

Pair Corralation between Arthur J and Erie Indemnity

Considering the 90-day investment horizon Arthur J is expected to generate 2.35 times less return on investment than Erie Indemnity. But when comparing it to its historical volatility, Arthur J Gallagher is 1.33 times less risky than Erie Indemnity. It trades about 0.06 of its potential returns per unit of risk. Erie Indemnity is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  17,922  in Erie Indemnity on December 30, 2023 and sell it today you would earn a total of  22,235  from holding Erie Indemnity or generate 124.07% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Arthur J Gallagher  vs.  Erie Indemnity

 Performance 
       Timeline  
Arthur J Gallagher 

Risk-Adjusted Performance

15 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Arthur J Gallagher are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady forward-looking indicators, Arthur J may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Erie Indemnity 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Erie Indemnity are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal forward indicators, Erie Indemnity exhibited solid returns over the last few months and may actually be approaching a breakup point.

Arthur J and Erie Indemnity Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Arthur J and Erie Indemnity

The main advantage of trading using opposite Arthur J and Erie Indemnity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arthur J position performs unexpectedly, Erie Indemnity 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 Erie Indemnity will offset losses from the drop in Erie Indemnity's long position.
The idea behind Arthur J Gallagher and Erie Indemnity 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.

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