Correlation Between Cincinnati Financial and Goosehead Insurance

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

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

Diversification Opportunities for Cincinnati Financial and Goosehead Insurance

0.89

Correlation Coefficient

Cincinnati Financial  Goosehead Insurance

Very poor diversification

The 3 months correlation between Cincinnati and Goosehead is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Cincinnati Financial and Goosehead Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goosehead Insurance and Cincinnati Financial 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 Cincinnati Financial 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 Cincinnati Financial i.e., Cincinnati Financial and Goosehead Insurance go up and down completely randomly.

Pair Corralation between Cincinnati Financial and Goosehead Insurance

Given the investment horizon of 90 days Cincinnati Financial is expected to under-perform the Goosehead Insurance. But the stock apears to be less risky and, when comparing its historical volatility, Cincinnati Financial is 2.0 times less risky than Goosehead Insurance. The stock trades about -0.21 of its potential returns per unit of risk. The Goosehead Insurance is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  10,039  in Goosehead Insurance on October 26, 2024 and sell it today you would earn a total of  36.50  from holding Goosehead Insurance or generate 0.36% return on investment over 90 days.

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

Cincinnati Financial  vs.  Goosehead Insurance

Cincinnati Financial

Risk-Adjusted Performance

0 of 100

Very Weak

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

Goosehead Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

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

The main advantage of trading using opposite Cincinnati Financial and Goosehead Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cincinnati Financial 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 Cincinnati Financial 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.