Correlation Between United Fire and RLI Corp
Can any of the company-specific risk be diversified away by investing in both United Fire 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 United Fire and RLI Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between United Fire Group and RLI Corp, you can compare the effects of market volatilities on United Fire 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 United Fire with a short position of RLI Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Fire and RLI Corp.
Diversification Opportunities for United Fire and RLI Corp
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between United and RLI is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding United Fire Group and RLI Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RLI Corp and United Fire 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 United Fire 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 United Fire i.e., United Fire and RLI Corp go up and down completely randomly.
Pair Corralation between United Fire and RLI Corp
Given the investment horizon of 90 days United Fire Group is expected to generate 4.55 times more return on investment than RLI Corp. However, United Fire is 4.55 times more volatile than RLI Corp. It trades about 0.35 of its potential returns per unit of risk. RLI Corp is currently generating about 0.52 per unit of risk. If you would invest 2,009 in United Fire Group on August 27, 2024 and sell it today you would earn a total of 980.00 from holding United Fire Group or generate 48.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
United Fire Group vs. RLI Corp
Performance |
| Timeline |
| United Fire Group |
| RLI Corp |
United Fire and RLI Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with United Fire and RLI Corp
The main advantage of trading using opposite United Fire and RLI Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Fire 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.| United Fire vs. Donegal Group B | United Fire vs. Horace Mann Educators | United Fire vs. Donegal Group A | United Fire vs. Global Indemnity PLC |
| RLI Corp vs. Horace Mann Educators | RLI Corp vs. Kemper | RLI Corp vs. Global Indemnity PLC | RLI Corp vs. Argo Group International |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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