Correlation Between Fanhua and Erie Indemnity

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

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

Diversification Opportunities for Fanhua and Erie Indemnity

-0.44

Correlation Coefficient

Fanhua  Erie Indemnity

Very good diversification

The 3 months correlation between Fanhua and Erie is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Fanhua Inc and Erie Indemnity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erie Indemnity and Fanhua 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 Fanhua Inc 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 Fanhua i.e., Fanhua and Erie Indemnity go up and down completely randomly.

Pair Corralation between Fanhua and Erie Indemnity

Given the investment horizon of 90 days Fanhua Inc is expected to under-perform the Erie Indemnity. In addition to that, Fanhua is 5.1 times more volatile than Erie Indemnity. It trades about -0.29 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 Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Fanhua Inc  vs.  Erie Indemnity

Fanhua Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fanhua Inc 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.

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 Fanhua and Erie Indemnity

The main advantage of trading using opposite Fanhua and Erie Indemnity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fanhua 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 Fanhua Inc 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.