Correlation Between Erie Indemnity and EHealth

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

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

Diversification Opportunities for Erie Indemnity and EHealth

-0.39

Correlation Coefficient

Erie Indemnity  EHealth

Very good diversification

The 3 months correlation between Erie and EHealth is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Erie Indemnity and eHealth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on eHealth 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 EHealth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of eHealth has no effect on the direction of Erie Indemnity i.e., Erie Indemnity and EHealth go up and down completely randomly.

Pair Corralation between Erie Indemnity and EHealth

Given the investment horizon of 90 days Erie Indemnity is expected to generate 0.22 times more return on investment than EHealth. However, Erie Indemnity is 4.51 times less risky than EHealth. It trades about -0.24 of its potential returns per unit of risk. eHealth is currently generating about -0.33 per unit of risk. If you would invest  40,061  in Erie Indemnity on February 1, 2024 and sell it today you would lose (1,795) from holding Erie Indemnity or give up 4.48% of portfolio value over 90 days.

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

Erie Indemnity  vs.  eHealth

Erie Indemnity

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Erie Indemnity are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent forward indicators, Erie Indemnity may actually be approaching a critical reversion point that can send shares even higher in June 2024.

eHealth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days eHealth has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in June 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Erie Indemnity and EHealth

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

The idea behind Erie Indemnity and eHealth 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.