Correlation Between Progressive Corp and RLI Corp

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

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

Diversification Opportunities for Progressive Corp and RLI Corp

-0.33

Correlation Coefficient

Progressive Corp  RLI Corp

Very good diversification

The 3 months correlation between Progressive and RLI is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Progressive Corp and RLI Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RLI Corp and Progressive Corp 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 Progressive Corp 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 Progressive Corp i.e., Progressive Corp and RLI Corp go up and down completely randomly.

Pair Corralation between Progressive Corp and RLI Corp

Considering the 90-day investment horizon Progressive Corp is expected to generate 0.83 times more return on investment than RLI Corp. However, Progressive Corp is 1.21 times less risky than RLI Corp. It trades about 0.21 of its potential returns per unit of risk. RLI Corp is currently generating about -0.02 per unit of risk. If you would invest  23,492  in Progressive Corp on December 29, 2024 and sell it today you would earn a total of  3,975  from holding Progressive Corp or generate 16.92% return on investment over 90 days.

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

Progressive Corp  vs.  RLI Corp

Progressive Corp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Progressive Corp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal technical and fundamental indicators, Progressive Corp 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 Progressive Corp and RLI Corp

The main advantage of trading using opposite Progressive Corp and RLI Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Progressive Corp 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 Progressive Corp 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.