Correlation Between Chubb and RLI Corp

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

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

Diversification Opportunities for Chubb and RLI Corp

0.71

Correlation Coefficient

Chubb  RLI Corp

Poor diversification

The 3 months correlation between Chubb and RLI is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Chubb and RLI Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RLI Corp and Chubb 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 Chubb are associated (or correlated) with RLI Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RLI Corp has no effect on the direction of Chubb i.e., Chubb and RLI Corp go up and down completely randomly.

Pair Corralation between Chubb and RLI Corp

Allowing for the 90-day total investment horizon Chubb is expected to generate 3.19 times less return on investment than RLI Corp. But when comparing it to its historical volatility, Chubb is 1.11 times less risky than RLI Corp. It trades about 0.06 of its potential returns per unit of risk. RLI Corp is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  14,679  in RLI Corp on August 9, 2024 and sell it today you would earn a total of  2,053  from holding RLI Corp or generate 13.99% return on investment over 90 days.

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

Chubb  vs.  RLI Corp

Chubb

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chubb are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Chubb is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

RLI Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RLI Corp are ranked lower than 13 (%) 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.

Pair Trading with Chubb and RLI Corp

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

The idea behind Chubb and RLI Corp 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..