Correlation Between Goosehead Insurance and TRACTOR SUPPLY

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

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

Diversification Opportunities for Goosehead Insurance and TRACTOR SUPPLY

0.17

Correlation Coefficient

Goosehead Insurance  TRACTOR SUPPLY

Average diversification

The 3 months correlation between Goosehead and TRACTOR is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Goosehead Insurance and TRACTOR SUPPLY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRACTOR SUPPLY 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 TRACTOR SUPPLY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRACTOR SUPPLY has no effect on the direction of Goosehead Insurance i.e., Goosehead Insurance and TRACTOR SUPPLY go up and down completely randomly.

Pair Corralation between Goosehead Insurance and TRACTOR SUPPLY

Assuming the 90 days trading horizon Goosehead Insurance is expected to generate 1.4 times more return on investment than TRACTOR SUPPLY. However, Goosehead Insurance is 1.4 times more volatile than TRACTOR SUPPLY. It trades about 0.21 of its potential returns per unit of risk. TRACTOR SUPPLY is currently generating about 0.03 per unit of risk. If you would invest  7,932  in Goosehead Insurance on September 22, 2024 and sell it today you would earn a total of  2,923  from holding Goosehead Insurance or generate 36.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Goosehead Insurance  vs.  TRACTOR SUPPLY

Goosehead Insurance

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Goosehead Insurance are ranked lower than 16 (%) 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.

TRACTOR SUPPLY

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in TRACTOR SUPPLY are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, TRACTOR SUPPLY is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Goosehead Insurance and TRACTOR SUPPLY

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

The idea behind Goosehead Insurance and TRACTOR SUPPLY 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.