Correlation Between Goosehead Insurance and Heritage Insurance

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

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

Diversification Opportunities for Goosehead Insurance and Heritage Insurance

-0.77

Correlation Coefficient

Goosehead Insurance  Heritage Insurance

Pay attention - limited upside

The 3 months correlation between Goosehead and Heritage is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Goosehead Insurance and Heritage Insurance Hldgs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Insurance Hldgs 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 Heritage Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heritage Insurance Hldgs has no effect on the direction of Goosehead Insurance i.e., Goosehead Insurance and Heritage Insurance go up and down completely randomly.

Pair Corralation between Goosehead Insurance and Heritage Insurance

Given the investment horizon of 90 days Goosehead Insurance is expected to under-perform the Heritage Insurance. But the stock apears to be less risky and, when comparing its historical volatility, Goosehead Insurance is 1.14 times less risky than Heritage Insurance. The stock trades about -0.08 of its potential returns per unit of risk. The Heritage Insurance Hldgs is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,077  in Heritage Insurance Hldgs on January 26, 2024 and sell it today you would lose (27.00) from holding Heritage Insurance Hldgs or give up 2.51% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Goosehead Insurance  vs.  Heritage Insurance Hldgs

Goosehead Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Goosehead Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Heritage Insurance Hldgs

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Insurance Hldgs are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Heritage Insurance reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Goosehead Insurance and Heritage Insurance

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

The idea behind Goosehead Insurance and Heritage Insurance Hldgs 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.