Correlation Between RLI Corp and Fairfax Financial

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

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

Diversification Opportunities for RLI Corp and Fairfax Financial

0.64

Correlation Coefficient

RLI Corp  Fairfax Financial

Poor diversification

The 3 months correlation between RLI and Fairfax is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding RLI Corp and Fairfax Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fairfax Financial 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 Fairfax Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fairfax Financial has no effect on the direction of RLI Corp i.e., RLI Corp and Fairfax Financial go up and down completely randomly.

Pair Corralation between RLI Corp and Fairfax Financial

If you would invest  14,694  in RLI Corp on September 12, 2024 and sell it today you would earn a total of  1,877  from holding RLI Corp or generate 12.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	1.59%
Values	Daily Returns

RLI Corp  vs.  Fairfax Financial Holdings

RLI Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RLI Corp are ranked lower than 11 (%) 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.

Fairfax Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fairfax Financial Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, Fairfax Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with RLI Corp and Fairfax Financial

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

The idea behind RLI Corp and Fairfax Financial Holdings 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.