Correlation Between British American and Goosehead Insurance

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Can any of the company-specific risk be diversified away by investing in both British 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 British 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 British American Tobacco and Goosehead Insurance, you can compare the effects of market volatilities on British 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 British American with a short position of Goosehead Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and Goosehead Insurance.

Diversification Opportunities for British American and Goosehead Insurance

0.29
  Correlation Coefficient

Modest diversification

The 3 months correlation between British and Goosehead is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Goosehead Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goosehead Insurance and British 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 British American Tobacco 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 British American i.e., British American and Goosehead Insurance go up and down completely randomly.

Pair Corralation between British American and Goosehead Insurance

Assuming the 90 days trading horizon British American is expected to generate 1.9 times less return on investment than Goosehead Insurance. But when comparing it to its historical volatility, British American Tobacco is 3.43 times less risky than Goosehead Insurance. It trades about 0.19 of its potential returns per unit of risk. Goosehead Insurance is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  6,818  in Goosehead Insurance on August 29, 2024 and sell it today you would earn a total of  5,252  from holding Goosehead Insurance or generate 77.03% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

British American Tobacco  vs.  Goosehead Insurance

 Performance 
       Timeline  
British American Tobacco 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, British American may actually be approaching a critical reversion point that can send shares even higher in December 2024.
Goosehead Insurance 

Risk-Adjusted Performance

23 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Goosehead Insurance are ranked lower than 23 (%) 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.

British American and Goosehead Insurance Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with British American and Goosehead Insurance

The main advantage of trading using opposite British American and Goosehead Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British 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 British American Tobacco 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.
Check out your portfolio center.
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.

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