Correlation Between Employers Holdings and First American
Can any of the company-specific risk be diversified away by investing in both Employers Holdings and First American 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 Employers Holdings and First American into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Employers Holdings and First American, you can compare the effects of market volatilities on Employers Holdings and First American 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 Employers Holdings with a short position of First American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Employers Holdings and First American.
Diversification Opportunities for Employers Holdings and First American
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Employers and First is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Employers Holdings and First American in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First American and Employers Holdings 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 Employers Holdings are associated (or correlated) with First American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First American has no effect on the direction of Employers Holdings i.e., Employers Holdings and First American go up and down completely randomly.
Pair Corralation between Employers Holdings and First American
Considering the 90-day investment horizon Employers Holdings is expected to generate 1.25 times less return on investment than First American. But when comparing it to its historical volatility, Employers Holdings is 1.13 times less risky than First American. It trades about 0.04 of its potential returns per unit of risk. First American is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 4,843 in First American on September 12, 2024 and sell it today you would earn a total of 1,700 from holding First American or generate 35.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Employers Holdings vs. First American
Performance |
| Timeline |
| Employers Holdings |
| First American |
Employers Holdings and First American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Employers Holdings and First American
The main advantage of trading using opposite Employers Holdings and First American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Employers Holdings position performs unexpectedly, First American 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 First American will offset losses from the drop in First American's long position.| Employers Holdings vs. First American | Employers Holdings vs. Assurant | Employers Holdings vs. NMI Holdings | Employers Holdings vs. MGIC Investment Corp |
| First American vs. Fidelity National Financial | First American vs. Stewart Information Services | First American vs. Old Republic International | First American vs. American Financial 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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