Correlation Between Goosehead Insurance and Philip Morris

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

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

Diversification Opportunities for Goosehead Insurance and Philip Morris

0.68

Correlation Coefficient

Goosehead Insurance  Philip Morris

Poor diversification

The 3 months correlation between Goosehead and Philip is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Goosehead Insurance and Philip Morris International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Philip Morris Intern and Goosehead Insurance 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 Goosehead Insurance are associated (or correlated) with Philip Morris. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Philip Morris Intern has no effect on the direction of Goosehead Insurance i.e., Goosehead Insurance and Philip Morris go up and down completely randomly.

Pair Corralation between Goosehead Insurance and Philip Morris

Assuming the 90 days trading horizon Goosehead Insurance is expected to generate 1.43 times more return on investment than Philip Morris. However, Goosehead Insurance is 1.43 times more volatile than Philip Morris International. It trades about 0.16 of its potential returns per unit of risk. Philip Morris International is currently generating about 0.11 per unit of risk. If you would invest  7,936  in Goosehead Insurance on October 5, 2024 and sell it today you would earn a total of  1,972  from holding Goosehead Insurance or generate 24.85% return on investment over 90 days.

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

Goosehead Insurance  vs.  Philip Morris International

Goosehead Insurance

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Goosehead Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Philip Morris Intern

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Philip Morris International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively uncertain basic indicators, Philip Morris may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Goosehead Insurance and Philip Morris

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

The idea behind Goosehead Insurance and Philip Morris International 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 .