Correlation Between Focus Home and Goosehead Insurance

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

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

Diversification Opportunities for Focus Home and Goosehead Insurance

-0.7

Correlation Coefficient

Focus Home  Goosehead Insurance

Excellent diversification

The 3 months correlation between Focus and Goosehead is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Focus Home Interactive and Goosehead Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goosehead Insurance and Focus Home 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 Focus Home Interactive are associated (or correlated) with Goosehead Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goosehead Insurance has no effect on the direction of Focus Home i.e., Focus Home and Goosehead Insurance go up and down completely randomly.

Pair Corralation between Focus Home and Goosehead Insurance

Assuming the 90 days horizon Focus Home Interactive is expected to under-perform the Goosehead Insurance. But the stock apears to be less risky and, when comparing its historical volatility, Focus Home Interactive is 1.4 times less risky than Goosehead Insurance. The stock trades about -0.05 of its potential returns per unit of risk. The Goosehead Insurance is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  9,384  in Goosehead Insurance on December 30, 2024 and sell it today you would earn a total of  1,541  from holding Goosehead Insurance or generate 16.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Focus Home Interactive  vs.  Goosehead Insurance

Focus Home Interactive

Risk-Adjusted Performance

Very Weak

Over the last 90 days Focus Home Interactive has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Goosehead Insurance

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Goosehead Insurance are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Goosehead Insurance unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Focus Home and Goosehead Insurance

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

The idea behind Focus Home Interactive and Goosehead Insurance 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .