Correlation Between Brp and Erie Indemnity

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

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

Diversification Opportunities for Brp and Erie Indemnity

0.89

Correlation Coefficient

Brp  Erie Indemnity

Very poor diversification

The 3 months correlation between Brp and Erie is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Brp Group and Erie Indemnity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erie Indemnity and Brp 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 Brp Group 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 Brp i.e., Brp and Erie Indemnity go up and down completely randomly.

Pair Corralation between Brp and Erie Indemnity

Considering the 90-day investment horizon Brp Group is expected to under-perform the Erie Indemnity. In addition to that, Brp is 2.44 times more volatile than Erie Indemnity. It trades about -0.07 of its total potential returns per unit of risk. Erie Indemnity is currently generating about -0.17 per unit of volatility. If you would invest  39,793  in Erie Indemnity on February 3, 2024 and sell it today you would lose (1,299) from holding Erie Indemnity or give up 3.26% of portfolio value over 90 days.

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

Brp Group  vs.  Erie Indemnity

Brp Group

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Brp Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Brp reported solid returns over the last few months and may actually be approaching a breakup point.

Erie Indemnity

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Erie Indemnity are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent forward indicators, Erie Indemnity exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Brp and Erie Indemnity

The main advantage of trading using opposite Brp and Erie Indemnity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brp 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 Brp Group 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.

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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.