Correlation Between RLI Corp and ProAssurance

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

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

Diversification Opportunities for RLI Corp and ProAssurance

0.25

Correlation Coefficient

RLI Corp  ProAssurance

Modest diversification

The 3 months correlation between RLI and ProAssurance is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding RLI Corp and ProAssurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProAssurance 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 ProAssurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProAssurance has no effect on the direction of RLI Corp i.e., RLI Corp and ProAssurance go up and down completely randomly.

Pair Corralation between RLI Corp and ProAssurance

Considering the 90-day investment horizon RLI Corp is expected to under-perform the ProAssurance. But the stock apears to be less risky and, when comparing its historical volatility, RLI Corp is 4.26 times less risky than ProAssurance. The stock trades about -0.02 of its potential returns per unit of risk. The ProAssurance is currently generating about 0.13 of returns per unit of risk over similar time horizon. 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

RLI Corp  vs.  ProAssurance

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.

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.

Pair Trading with RLI Corp and ProAssurance

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

The idea behind RLI Corp and ProAssurance 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.