Correlation Between International Business and Goosehead Insurance

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

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

Diversification Opportunities for International Business and Goosehead Insurance

-0.02

Correlation Coefficient

International Business  Goosehead Insurance

Good diversification

The 3 months correlation between International and Goosehead is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine and Goosehead Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goosehead Insurance and International Business 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 International Business Machines 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 International Business i.e., International Business and Goosehead Insurance go up and down completely randomly.

Pair Corralation between International Business and Goosehead Insurance

Considering the 90-day investment horizon International Business Machines is expected to generate 0.28 times more return on investment than Goosehead Insurance. However, International Business Machines is 3.61 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 -0.21 per unit of risk. If you would invest  18,879  in International Business Machines on January 24, 2024 and sell it today you would lose (660.00) from holding International Business Machines or give up 3.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

International Business Machine  vs.  Goosehead Insurance

International Business

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental drivers, International Business may actually be approaching a critical reversion point that can send shares even higher in May 2024.

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 weak 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.

Pair Trading with International Business and Goosehead Insurance

The main advantage of trading using opposite International Business and Goosehead Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Business 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 International Business Machines 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.