Correlation Between Erie Indemnity and Willis Towers

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

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

Diversification Opportunities for Erie Indemnity and Willis Towers

-0.73

Correlation Coefficient

Erie Indemnity  Willis Towers

Pay attention - limited upside

The 3 months correlation between Erie and Willis is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Erie Indemnity and Willis Towers Watson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Willis Towers Watson 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 Willis Towers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Willis Towers Watson has no effect on the direction of Erie Indemnity i.e., Erie Indemnity and Willis Towers go up and down completely randomly.

Pair Corralation between Erie Indemnity and Willis Towers

Given the investment horizon of 90 days Erie Indemnity is expected to generate 1.24 times less return on investment than Willis Towers. In addition to that, Erie Indemnity is 1.67 times more volatile than Willis Towers Watson. It trades about 0.07 of its total potential returns per unit of risk. Willis Towers Watson is currently generating about 0.15 per unit of volatility. If you would invest  25,864  in Willis Towers Watson on September 29, 2024 and sell it today you would earn a total of  5,767  from holding Willis Towers Watson or generate 22.3% return on investment over 90 days.

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

Erie Indemnity  vs.  Willis Towers Watson

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 inconsistent performance in the last few months, the Stock's forward indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Willis Towers Watson

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Willis Towers Watson are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Willis Towers may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Erie Indemnity and Willis Towers

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

The idea behind Erie Indemnity and Willis Towers Watson 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.