Correlation Between RLI Corp and Root

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

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

Diversification Opportunities for RLI Corp and Root

0.92

Correlation Coefficient

RLI Corp  Root

Almost no diversification

The 3 months correlation between RLI and Root is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding RLI Corp and Root Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Root Inc 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 Root. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Root Inc has no effect on the direction of RLI Corp i.e., RLI Corp and Root go up and down completely randomly.

Pair Corralation between RLI Corp and Root

Considering the 90-day investment horizon RLI Corp is expected to generate 0.21 times more return on investment than Root. However, RLI Corp is 4.8 times less risky than Root. It trades about -0.04 of its potential returns per unit of risk. Root Inc is currently generating about -0.23 per unit of risk. If you would invest  17,151  in RLI Corp on September 18, 2024 and sell it today you would lose (124.00) from holding RLI Corp or give up 0.72% of portfolio value over 90 days.

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

RLI Corp  vs.  Root Inc

RLI Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RLI Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating essential indicators, RLI Corp demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Root Inc

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Root Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Root unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RLI Corp and Root

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

The idea behind RLI Corp and Root Inc 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.