Correlation Between Erie Indemnity and AMERISAFE

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

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

Diversification Opportunities for Erie Indemnity and AMERISAFE

0.53

Correlation Coefficient

Erie Indemnity  AMERISAFE

Very weak diversification

The 3 months correlation between Erie and AMERISAFE is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Erie Indemnity and AMERISAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMERISAFE 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 AMERISAFE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMERISAFE has no effect on the direction of Erie Indemnity i.e., Erie Indemnity and AMERISAFE go up and down completely randomly.

Pair Corralation between Erie Indemnity and AMERISAFE

Given the investment horizon of 90 days Erie Indemnity is expected to generate 1.02 times more return on investment than AMERISAFE. However, Erie Indemnity is 1.02 times more volatile than AMERISAFE. It trades about -0.02 of its potential returns per unit of risk. AMERISAFE is currently generating about -0.07 per unit of risk. If you would invest  35,964  in Erie Indemnity on May 6, 2025 and sell it today you would lose (889.00) from holding Erie Indemnity or give up 2.47% of portfolio value over 90 days.

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

Erie Indemnity  vs.  AMERISAFE

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.

AMERISAFE

Risk-Adjusted Performance

Very Weak

Over the last 90 days AMERISAFE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, AMERISAFE is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Erie Indemnity and AMERISAFE

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

The idea behind Erie Indemnity and AMERISAFE 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..