Correlation Between Heritage Insurance and RLI Corp

Can any of the company-specific risk be diversified away by investing in both Heritage 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 Heritage 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 Heritage Insurance Hldgs and RLI Corp, you can compare the effects of market volatilities on Heritage 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 Heritage Insurance with a short position of RLI Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Heritage Insurance and RLI Corp.

Diversification Opportunities for Heritage Insurance and RLI Corp

0.15

Correlation Coefficient

Heritage Insurance  RLI Corp

Average diversification

The 3 months correlation between Heritage and RLI is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Heritage Insurance Hldgs and RLI Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RLI Corp and Heritage 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 Heritage Insurance Hldgs 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 Heritage Insurance i.e., Heritage Insurance and RLI Corp go up and down completely randomly.

Pair Corralation between Heritage Insurance and RLI Corp

Given the investment horizon of 90 days Heritage Insurance Hldgs is expected to generate 1.92 times more return on investment than RLI Corp. However, Heritage Insurance is 1.92 times more volatile than RLI Corp. It trades about 0.1 of its potential returns per unit of risk. RLI Corp is currently generating about -0.04 per unit of risk. If you would invest  1,190  in Heritage Insurance Hldgs on December 28, 2024 and sell it today you would earn a total of  188.00  from holding Heritage Insurance Hldgs or generate 15.8% return on investment over 90 days.

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

Heritage Insurance Hldgs  vs.  RLI Corp

Heritage Insurance Hldgs

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Insurance Hldgs are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Heritage Insurance reported solid returns over the last few months and may actually be approaching a breakup point.

RLI Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days RLI Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong essential indicators, RLI Corp is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Heritage Insurance and RLI Corp

The main advantage of trading using opposite Heritage Insurance and RLI Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Heritage 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 Heritage Insurance Hldgs 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.