Correlation Between AMERICAN and Goosehead Insurance

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

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

Diversification Opportunities for AMERICAN and Goosehead Insurance

-0.21

Correlation Coefficient

AMERICAN  Goosehead Insurance

Very good diversification

The 3 months correlation between AMERICAN and Goosehead is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding AMERICAN INTL GROUP and Goosehead Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goosehead Insurance and AMERICAN 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 AMERICAN INTL 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 AMERICAN i.e., AMERICAN and Goosehead Insurance go up and down completely randomly.

Pair Corralation between AMERICAN and Goosehead Insurance

Assuming the 90 days trading horizon AMERICAN INTL GROUP is expected to under-perform the Goosehead Insurance. But the bond apears to be less risky and, when comparing its historical volatility, AMERICAN INTL GROUP is 3.45 times less risky than Goosehead Insurance. The bond trades about -0.2 of its potential returns per unit of risk. The Goosehead Insurance is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  9,048  in Goosehead Insurance on October 11, 2024 and sell it today you would earn a total of  1,324  from holding Goosehead Insurance or generate 14.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	53.23%
Values	Daily Returns

AMERICAN INTL GROUP  vs.  Goosehead Insurance

AMERICAN INTL GROUP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AMERICAN INTL GROUP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for AMERICAN INTL GROUP investors.

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.

Pair Trading with AMERICAN and Goosehead Insurance

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

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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.