Correlation Between Goosehead Insurance and Direct Line

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

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

Diversification Opportunities for Goosehead Insurance and Direct Line

0.64

Correlation Coefficient

Goosehead Insurance  Direct Line

Poor diversification

The 3 months correlation between Goosehead and Direct is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Goosehead Insurance and Direct Line Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direct Line Insurance 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 Direct Line. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direct Line Insurance has no effect on the direction of Goosehead Insurance i.e., Goosehead Insurance and Direct Line go up and down completely randomly.

Pair Corralation between Goosehead Insurance and Direct Line

Given the investment horizon of 90 days Goosehead Insurance is expected to generate 1.67 times more return on investment than Direct Line. However, Goosehead Insurance is 1.67 times more volatile than Direct Line Insurance. It trades about 0.1 of its potential returns per unit of risk. Direct Line Insurance is currently generating about 0.12 per unit of risk. If you would invest  9,884  in Goosehead Insurance on December 21, 2024 and sell it today you would earn a total of  1,648  from holding Goosehead Insurance or generate 16.67% 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.  Direct Line Insurance

Goosehead Insurance

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Goosehead Insurance are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical indicators, Goosehead Insurance exhibited solid returns over the last few months and may actually be approaching a breakup point.

Direct Line Insurance

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direct Line Insurance are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Direct Line showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Goosehead Insurance and Direct Line

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

The idea behind Goosehead Insurance and Direct Line 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.