Correlation Between Arch Capital and Goosehead Insurance

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

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

Diversification Opportunities for Arch Capital and Goosehead Insurance

0.71

Correlation Coefficient

Arch Capital  Goosehead Insurance

Poor diversification

The 3 months correlation between Arch and Goosehead is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Arch Capital Group and Goosehead Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goosehead Insurance and Arch Capital 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 Arch Capital Group 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 Arch Capital i.e., Arch Capital and Goosehead Insurance go up and down completely randomly.

Pair Corralation between Arch Capital and Goosehead Insurance

Assuming the 90 days horizon Arch Capital Group is expected to under-perform the Goosehead Insurance. But the preferred stock apears to be less risky and, when comparing its historical volatility, Arch Capital Group is 3.3 times less risky than Goosehead Insurance. The preferred stock trades about -0.06 of its potential returns per unit of risk. The Goosehead Insurance is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  11,937  in Goosehead Insurance on November 29, 2024 and sell it today you would earn a total of  345.00  from holding Goosehead Insurance or generate 2.89% return on investment over 90 days.

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

Arch Capital Group  vs.  Goosehead Insurance

Arch Capital Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arch Capital Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, Arch Capital is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Goosehead Insurance

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Goosehead Insurance are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, Goosehead Insurance is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Arch Capital and Goosehead Insurance

The main advantage of trading using opposite Arch Capital and Goosehead Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arch Capital 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 Arch Capital Group 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.