Correlation Between American Financial and RLI Corp

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

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

Diversification Opportunities for American Financial and RLI Corp

0.45

Correlation Coefficient

American Financial  RLI Corp

Very weak diversification

The 3 months correlation between American and RLI is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding American Financial Group and RLI Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RLI Corp and American Financial 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 American Financial 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 American Financial i.e., American Financial and RLI Corp go up and down completely randomly.

Pair Corralation between American Financial and RLI Corp

Considering the 90-day investment horizon American Financial is expected to generate 3.78 times less return on investment than RLI Corp. But when comparing it to its historical volatility, American Financial Group is 1.02 times less risky than RLI Corp. It trades about 0.01 of its potential returns per unit of risk. RLI Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  11,171  in RLI Corp on February 26, 2024 and sell it today you would earn a total of  3,417  from holding RLI Corp or generate 30.59% return on investment over 90 days.

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

American Financial Group  vs.  RLI Corp

American Financial

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Financial Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, American Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

RLI Corp

Risk-Adjusted Performance

0 of 100

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.

Pair Trading with American Financial and RLI Corp

The main advantage of trading using opposite American Financial and RLI Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Financial 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 American Financial 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.

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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.