Correlation Between Goosehead Insurance and FARO Technologies

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

By analyzing existing cross correlation between Goosehead Insurance and FARO Technologies, you can compare the effects of market volatilities on Goosehead Insurance and FARO Technologies 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 FARO Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Goosehead Insurance and FARO Technologies.

Diversification Opportunities for Goosehead Insurance and FARO Technologies

0.9

Correlation Coefficient

Goosehead Insurance  FARO Technologies

Almost no diversification

The 3 months correlation between Goosehead and FARO is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Goosehead Insurance and FARO Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FARO Technologies 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 FARO Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FARO Technologies has no effect on the direction of Goosehead Insurance i.e., Goosehead Insurance and FARO Technologies go up and down completely randomly.

Pair Corralation between Goosehead Insurance and FARO Technologies

Assuming the 90 days trading horizon Goosehead Insurance is expected to generate 0.79 times more return on investment than FARO Technologies. However, Goosehead Insurance is 1.26 times less risky than FARO Technologies. It trades about 0.09 of its potential returns per unit of risk. FARO Technologies is currently generating about 0.02 per unit of risk. If you would invest  3,576  in Goosehead Insurance on September 14, 2024 and sell it today you would earn a total of  7,624  from holding Goosehead Insurance or generate 213.2% return on investment over 90 days.

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

Goosehead Insurance  vs.  FARO Technologies

Goosehead Insurance

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Goosehead Insurance are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Goosehead Insurance unveiled solid returns over the last few months and may actually be approaching a breakup point.

FARO Technologies

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FARO Technologies are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, FARO Technologies reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Goosehead Insurance and FARO Technologies

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

The idea behind Goosehead Insurance and FARO Technologies 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.