Correlation Between AmTrust Financial and RLI Corp

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

By analyzing existing cross correlation between AmTrust Financial Services and RLI Corp, you can compare the effects of market volatilities on AmTrust Financial and RLI Corp 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 AmTrust Financial with a short position of RLI Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of AmTrust Financial and RLI Corp.

Diversification Opportunities for AmTrust Financial and RLI Corp

0.21

Correlation Coefficient

AmTrust Financial  RLI Corp

Modest diversification

The 3 months correlation between AmTrust and RLI is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding AmTrust Financial Services and RLI Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RLI Corp and AmTrust Financial 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 AmTrust Financial Services are associated (or correlated) with RLI Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RLI Corp has no effect on the direction of AmTrust Financial i.e., AmTrust Financial and RLI Corp go up and down completely randomly.

Pair Corralation between AmTrust Financial and RLI Corp

Assuming the 90 days horizon AmTrust Financial is expected to generate 2.97 times less return on investment than RLI Corp. In addition to that, AmTrust Financial is 1.15 times more volatile than RLI Corp. It trades about 0.03 of its total potential returns per unit of risk. RLI Corp is currently generating about 0.12 per unit of volatility. If you would invest  14,923  in RLI Corp on September 20, 2024 and sell it today you would earn a total of  1,483  from holding RLI Corp or generate 9.94% return on investment over 90 days.

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

AmTrust Financial Services  vs.  RLI Corp

AmTrust Financial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AmTrust Financial Services are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward indicators, AmTrust Financial is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

RLI Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RLI Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating essential indicators, RLI Corp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with AmTrust Financial and RLI Corp

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

The idea behind AmTrust Financial Services and RLI Corp 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.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.