Correlation Between LGI Homes and Goosehead Insurance

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

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

Diversification Opportunities for LGI Homes and Goosehead Insurance

-0.16

Correlation Coefficient

LGI Homes  Goosehead Insurance

Good diversification

The 3 months correlation between LGI and Goosehead is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding LGI Homes and Goosehead Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goosehead Insurance and LGI Homes 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 LGI Homes 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 LGI Homes i.e., LGI Homes and Goosehead Insurance go up and down completely randomly.

Pair Corralation between LGI Homes and Goosehead Insurance

Assuming the 90 days trading horizon LGI Homes is expected to generate 6.92 times less return on investment than Goosehead Insurance. In addition to that, LGI Homes is 1.04 times more volatile than Goosehead Insurance. It trades about 0.04 of its total potential returns per unit of risk. Goosehead Insurance is currently generating about 0.29 per unit of volatility. If you would invest  7,590  in Goosehead Insurance on September 12, 2024 and sell it today you would earn a total of  4,150  from holding Goosehead Insurance or generate 54.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

LGI Homes  vs.  Goosehead Insurance

LGI Homes

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LGI Homes are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, LGI Homes may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Goosehead Insurance

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Goosehead Insurance are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Goosehead Insurance unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LGI Homes and Goosehead Insurance

The main advantage of trading using opposite LGI Homes and Goosehead Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LGI Homes 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 LGI Homes 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.