Correlation Between Marsh McLennan and Erie Indemnity
Can any of the company-specific risk be diversified away by investing in both Marsh McLennan 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 Marsh McLennan and Erie Indemnity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Marsh McLennan Companies and Erie Indemnity, you can compare the effects of market volatilities on Marsh McLennan 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 Marsh McLennan with a short position of Erie Indemnity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Marsh McLennan and Erie Indemnity.
Diversification Opportunities for Marsh McLennan and Erie Indemnity
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Marsh and Erie is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Marsh McLennan Companies and Erie Indemnity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erie Indemnity and Marsh McLennan 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 Marsh McLennan Companies 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 Marsh McLennan i.e., Marsh McLennan and Erie Indemnity go up and down completely randomly.
Pair Corralation between Marsh McLennan and Erie Indemnity
Considering the 90-day investment horizon Marsh McLennan is expected to generate 7.21 times less return on investment than Erie Indemnity. But when comparing it to its historical volatility, Marsh McLennan Companies is 2.08 times less risky than Erie Indemnity. It trades about 0.05 of its potential returns per unit of risk. Erie Indemnity is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 21,653 in Erie Indemnity on January 24, 2024 and sell it today you would earn a total of 16,568 from holding Erie Indemnity or generate 76.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Marsh McLennan Companies vs. Erie Indemnity
Performance |
| Timeline |
| Marsh McLennan Companies |
| Erie Indemnity |
Marsh McLennan and Erie Indemnity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Marsh McLennan and Erie Indemnity
The main advantage of trading using opposite Marsh McLennan and Erie Indemnity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Marsh McLennan 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.| Marsh McLennan vs. Willis Towers Watson | Marsh McLennan vs. Erie Indemnity | Marsh McLennan vs. CorVel Corp | Marsh McLennan vs. Huize HoldingLtd |
| Erie Indemnity vs. CorVel Corp | Erie Indemnity vs. eHealth | Erie Indemnity vs. Fanhua Inc | Erie Indemnity vs. Brp Group |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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