Correlation Between Erie Indemnity and American Financial

Can any of the company-specific risk be diversified away by investing in both Erie Indemnity and American Financial 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 American Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Erie Indemnity and American Financial Group, you can compare the effects of market volatilities on Erie Indemnity and American Financial 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 American Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Erie Indemnity and American Financial.

Diversification Opportunities for Erie Indemnity and American Financial

0.16

Correlation Coefficient

Erie Indemnity  American Financial

Average diversification

The 3 months correlation between Erie and American is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Erie Indemnity and American Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Financial 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 American Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Financial has no effect on the direction of Erie Indemnity i.e., Erie Indemnity and American Financial go up and down completely randomly.

Pair Corralation between Erie Indemnity and American Financial

Given the investment horizon of 90 days Erie Indemnity is expected to under-perform the American Financial. In addition to that, Erie Indemnity is 1.26 times more volatile than American Financial Group. It trades about -0.01 of its total potential returns per unit of risk. American Financial Group is currently generating about 0.03 per unit of volatility. If you would invest  12,123  in American Financial Group on May 7, 2025 and sell it today you would earn a total of  237.00  from holding American Financial Group or generate 1.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Erie Indemnity  vs.  American Financial Group

Erie Indemnity

Risk-Adjusted Performance

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 rather sound forward indicators, Erie Indemnity is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

American Financial

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Financial Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, American Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Erie Indemnity and American Financial

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

The idea behind Erie Indemnity and American Financial Group 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.

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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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.