Correlation Between RLI Corp and Bowhead Specialty

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

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

Diversification Opportunities for RLI Corp and Bowhead Specialty

0.95

Correlation Coefficient

RLI Corp  Bowhead Specialty

Almost no diversification

The 3 months correlation between RLI and Bowhead is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding RLI Corp and Bowhead Specialty Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bowhead Specialty and RLI 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 RLI Corp are associated (or correlated) with Bowhead Specialty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bowhead Specialty has no effect on the direction of RLI Corp i.e., RLI Corp and Bowhead Specialty go up and down completely randomly.

Pair Corralation between RLI Corp and Bowhead Specialty

Considering the 90-day investment horizon RLI Corp is expected to generate 2.09 times less return on investment than Bowhead Specialty. But when comparing it to its historical volatility, RLI Corp is 1.48 times less risky than Bowhead Specialty. It trades about 0.13 of its potential returns per unit of risk. Bowhead Specialty Holdings is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,855  in Bowhead Specialty Holdings on September 19, 2024 and sell it today you would earn a total of  710.00  from holding Bowhead Specialty Holdings or generate 24.87% return on investment over 90 days.

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

RLI Corp  vs.  Bowhead Specialty Holdings

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.

Bowhead Specialty

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bowhead Specialty Holdings are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Bowhead Specialty showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RLI Corp and Bowhead Specialty

The main advantage of trading using opposite RLI Corp and Bowhead Specialty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RLI Corp position performs unexpectedly, Bowhead Specialty 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 Bowhead Specialty will offset losses from the drop in Bowhead Specialty's long position.

The idea behind RLI Corp and Bowhead Specialty Holdings 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.