Correlation Between Selective Insurance and RLI Corp

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

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

Diversification Opportunities for Selective Insurance and RLI Corp

0.92

Correlation Coefficient

Selective Insurance  RLI Corp

Almost no diversification

The 3 months correlation between Selective and RLI is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Selective Insurance Group and RLI Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RLI Corp and Selective Insurance 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 Selective Insurance Group 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 Selective Insurance i.e., Selective Insurance and RLI Corp go up and down completely randomly.

Pair Corralation between Selective Insurance and RLI Corp

Given the investment horizon of 90 days Selective Insurance is expected to generate 2.02 times less return on investment than RLI Corp. In addition to that, Selective Insurance is 1.23 times more volatile than RLI Corp. It trades about 0.08 of its total potential returns per unit of risk. RLI Corp is currently generating about 0.19 per unit of volatility. If you would invest  15,107  in RLI Corp on August 23, 2024 and sell it today you would earn a total of  2,494  from holding RLI Corp or generate 16.51% return on investment over 90 days.

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

Selective Insurance Group  vs.  RLI Corp

Selective Insurance

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Selective Insurance Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical and fundamental indicators, Selective Insurance may actually be approaching a critical reversion point that can send shares even higher in December 2024.

RLI Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RLI Corp are ranked lower than 14 (%) 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 Selective Insurance and RLI Corp

The main advantage of trading using opposite Selective Insurance and RLI Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Selective Insurance 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 Selective Insurance Group 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.