Correlation Between AUTO TRADER and Goosehead Insurance

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

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

Diversification Opportunities for AUTO TRADER and Goosehead Insurance

-0.6

Correlation Coefficient

AUTO TRADER  Goosehead Insurance

Excellent diversification

The 3 months correlation between AUTO and Goosehead is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding AUTO TRADER ADR and Goosehead Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goosehead Insurance and AUTO TRADER 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 AUTO TRADER ADR 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 AUTO TRADER i.e., AUTO TRADER and Goosehead Insurance go up and down completely randomly.

Pair Corralation between AUTO TRADER and Goosehead Insurance

Assuming the 90 days trading horizon AUTO TRADER is expected to generate 10.7 times less return on investment than Goosehead Insurance. But when comparing it to its historical volatility, AUTO TRADER ADR is 2.31 times less risky than Goosehead Insurance. It trades about 0.04 of its potential returns per unit of risk. Goosehead Insurance is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  5,410  in Goosehead Insurance on September 15, 2024 and sell it today you would earn a total of  5,690  from holding Goosehead Insurance or generate 105.18% return on investment over 90 days.

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

AUTO TRADER ADR  vs.  Goosehead Insurance

AUTO TRADER ADR

Risk-Adjusted Performance

0 of 100

Very Weak

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

Goosehead Insurance

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Goosehead Insurance are ranked lower than 18 (%) 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 AUTO TRADER and Goosehead Insurance

The main advantage of trading using opposite AUTO TRADER and Goosehead Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AUTO TRADER 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 AUTO TRADER ADR 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.