Correlation Between Donegal Group and RLI Corp

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

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

Diversification Opportunities for Donegal Group and RLI Corp

-0.25

Correlation Coefficient

Donegal Group  RLI Corp

Very good diversification

The 3 months correlation between Donegal and RLI is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Donegal Group A and RLI Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RLI Corp and Donegal Group 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 Donegal Group A 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 Donegal Group i.e., Donegal Group and RLI Corp go up and down completely randomly.

Pair Corralation between Donegal Group and RLI Corp

Assuming the 90 days horizon Donegal Group A is expected to under-perform the RLI Corp. But the stock apears to be less risky and, when comparing its historical volatility, Donegal Group A is 1.19 times less risky than RLI Corp. The stock trades about -0.05 of its potential returns per unit of risk. The RLI Corp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  14,348  in RLI Corp on February 7, 2024 and sell it today you would earn a total of  9.00  from holding RLI Corp or generate 0.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Donegal Group A  vs.  RLI Corp

Donegal Group A

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Donegal Group A has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Donegal Group is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

RLI Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in RLI Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. 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 Donegal Group and RLI Corp

The main advantage of trading using opposite Donegal Group and RLI Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Donegal Group 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 Donegal Group A 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.