Correlation Between Aspen Insurance and RLI Corp

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

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

Diversification Opportunities for Aspen Insurance and RLI Corp

-0.69

Correlation Coefficient

Aspen Insurance  RLI Corp

Excellent diversification

The 3 months correlation between Aspen and RLI is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Aspen Insurance Holdings and RLI Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RLI Corp and Aspen Insurance 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 Aspen Insurance Holdings 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 Aspen Insurance i.e., Aspen Insurance and RLI Corp go up and down completely randomly.

Pair Corralation between Aspen Insurance and RLI Corp

Assuming the 90 days trading horizon Aspen Insurance is expected to generate 16.71 times less return on investment than RLI Corp. But when comparing it to its historical volatility, Aspen Insurance Holdings is 2.25 times less risky than RLI Corp. It trades about 0.02 of its potential returns per unit of risk. RLI Corp is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  13,790  in RLI Corp on September 19, 2024 and sell it today you would earn a total of  2,898  from holding RLI Corp or generate 21.02% return on investment over 90 days.

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

Aspen Insurance Holdings  vs.  RLI Corp

Aspen Insurance Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aspen Insurance Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Aspen Insurance is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

RLI Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RLI Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak essential indicators, RLI Corp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Aspen Insurance and RLI Corp

The main advantage of trading using opposite Aspen Insurance and RLI Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aspen Insurance 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 Aspen Insurance Holdings 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.

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