Correlation Between RLI Corp and Selective Insurance

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

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

Diversification Opportunities for RLI Corp and Selective Insurance

0.51

Correlation Coefficient

RLI Corp  Selective Insurance

Very weak diversification

The 3 months correlation between RLI and Selective is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding RLI Corp and Selective Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Selective Insurance 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 Selective Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Selective Insurance has no effect on the direction of RLI Corp i.e., RLI Corp and Selective Insurance go up and down completely randomly.

Pair Corralation between RLI Corp and Selective Insurance

Considering the 90-day investment horizon RLI Corp is expected to under-perform the Selective Insurance. But the stock apears to be less risky and, when comparing its historical volatility, RLI Corp is 1.39 times less risky than Selective Insurance. The stock trades about -0.02 of its potential returns per unit of risk. The Selective Insurance Group is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  9,301  in Selective Insurance Group on December 28, 2024 and sell it today you would lose (122.00) from holding Selective Insurance Group or give up 1.31% of portfolio value over 90 days.

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

RLI Corp  vs.  Selective Insurance Group

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.

Selective Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Selective Insurance Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Selective Insurance is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with RLI Corp and Selective Insurance

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

The idea behind RLI Corp and Selective Insurance Group 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.