Correlation Between RLI Corp and Stewart Information

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

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

Diversification Opportunities for RLI Corp and Stewart Information

0.62

Correlation Coefficient

RLI Corp  Stewart Information

Poor diversification

The 3 months correlation between RLI and Stewart is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding RLI Corp and Stewart Information Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stewart Information 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 Stewart Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stewart Information has no effect on the direction of RLI Corp i.e., RLI Corp and Stewart Information go up and down completely randomly.

Pair Corralation between RLI Corp and Stewart Information

Considering the 90-day investment horizon RLI Corp is expected to generate 0.7 times more return on investment than Stewart Information. However, RLI Corp is 1.44 times less risky than Stewart Information. It trades about 0.13 of its potential returns per unit of risk. Stewart Information Services is currently generating about 0.07 per unit of risk. If you would invest  13,715  in RLI Corp on September 27, 2024 and sell it today you would earn a total of  3,017  from holding RLI Corp or generate 22.0% return on investment over 90 days.

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

RLI Corp  vs.  Stewart Information Services

RLI Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RLI Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating essential indicators, RLI Corp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Stewart Information

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stewart Information Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Stewart Information 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 Stewart Information

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

The idea behind RLI Corp and Stewart Information Services 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.