Correlation Between Goosehead Insurance and Lithia Motors

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

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

Diversification Opportunities for Goosehead Insurance and Lithia Motors

0.92

Correlation Coefficient

Goosehead Insurance  Lithia Motors

Almost no diversification

The 3 months correlation between Goosehead and Lithia is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Goosehead Insurance and Lithia Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithia Motors 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 Lithia Motors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lithia Motors has no effect on the direction of Goosehead Insurance i.e., Goosehead Insurance and Lithia Motors go up and down completely randomly.

Pair Corralation between Goosehead Insurance and Lithia Motors

Given the investment horizon of 90 days Goosehead Insurance is expected to under-perform the Lithia Motors. In addition to that, Goosehead Insurance is 1.4 times more volatile than Lithia Motors. It trades about -0.32 of its total potential returns per unit of risk. Lithia Motors is currently generating about -0.27 per unit of volatility. If you would invest  37,652  in Lithia Motors on October 11, 2024 and sell it today you would lose (2,747) from holding Lithia Motors or give up 7.3% of portfolio value over 90 days.

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

Goosehead Insurance  vs.  Lithia Motors

Goosehead Insurance

Risk-Adjusted Performance

7 of 100

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.

Lithia Motors

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Goosehead Insurance and Lithia Motors

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

The idea behind Goosehead Insurance and Lithia Motors 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.