Correlation Between RLI Corp and Lemonade

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

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

Diversification Opportunities for RLI Corp and Lemonade

0.36

Correlation Coefficient

RLI Corp  Lemonade

Weak diversification

The 3 months correlation between RLI and Lemonade is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding RLI Corp and Lemonade in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lemonade 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 Lemonade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lemonade has no effect on the direction of RLI Corp i.e., RLI Corp and Lemonade go up and down completely randomly.

Pair Corralation between RLI Corp and Lemonade

Considering the 90-day investment horizon RLI Corp is expected to generate 0.31 times more return on investment than Lemonade. However, RLI Corp is 3.25 times less risky than Lemonade. It trades about -0.04 of its potential returns per unit of risk. Lemonade is currently generating about -0.02 per unit of risk. If you would invest  8,222  in RLI Corp on December 28, 2024 and sell it today you would lose (391.00) from holding RLI Corp or give up 4.76% of portfolio value over 90 days.

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

RLI Corp  vs.  Lemonade

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.

Lemonade

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lemonade has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Lemonade is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with RLI Corp and Lemonade

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

The idea behind RLI Corp and Lemonade 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.