Correlation Between ProAssurance and RLI Corp

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

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

Diversification Opportunities for ProAssurance and RLI Corp

0.25

Correlation Coefficient

ProAssurance  RLI Corp

Modest diversification

The 3 months correlation between ProAssurance and RLI is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding ProAssurance and RLI Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RLI Corp and ProAssurance 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 ProAssurance 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 ProAssurance i.e., ProAssurance and RLI Corp go up and down completely randomly.

Pair Corralation between ProAssurance and RLI Corp

Considering the 90-day investment horizon ProAssurance is expected to generate 4.26 times more return on investment than RLI Corp. However, ProAssurance is 4.26 times more volatile than RLI Corp. It trades about 0.13 of its potential returns per unit of risk. RLI Corp is currently generating about -0.02 per unit of risk. If you would invest  1,554  in ProAssurance on December 29, 2024 and sell it today you would earn a total of  780.00  from holding ProAssurance or generate 50.19% return on investment over 90 days.

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

ProAssurance  vs.  RLI Corp

ProAssurance

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProAssurance are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ProAssurance sustained 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 ProAssurance and RLI Corp

The main advantage of trading using opposite ProAssurance and RLI Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProAssurance 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 ProAssurance 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.