Correlation Between NI Holdings and RLI Corp

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

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

Diversification Opportunities for NI Holdings and RLI Corp

0.85

Correlation Coefficient

NI Holdings  RLI Corp

Very poor diversification

The 3 months correlation between NODK and RLI is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding NI Holdings and RLI Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RLI Corp and NI 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 NI 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 NI Holdings i.e., NI Holdings and RLI Corp go up and down completely randomly.

Pair Corralation between NI Holdings and RLI Corp

Given the investment horizon of 90 days NI Holdings is expected to generate 0.97 times more return on investment than RLI Corp. However, NI Holdings is 1.03 times less risky than RLI Corp. It trades about -0.11 of its potential returns per unit of risk. RLI Corp is currently generating about -0.16 per unit of risk. If you would invest  1,614  in NI Holdings on November 29, 2024 and sell it today you would lose (164.00) from holding NI Holdings or give up 10.16% of portfolio value over 90 days.

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

NI Holdings  vs.  RLI Corp

NI Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days NI Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

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 unfluctuating performance in the last few months, the Stock's essential indicators remain fairly strong which may send shares a bit higher in March 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with NI Holdings and RLI Corp

The main advantage of trading using opposite NI Holdings and RLI Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NI Holdings 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 NI 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.