Correlation Between Canadian Utilities and Goosehead Insurance

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

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

Diversification Opportunities for Canadian Utilities and Goosehead Insurance

0.55

Correlation Coefficient

Canadian Utilities  Goosehead Insurance

Very weak diversification

The 3 months correlation between Canadian and Goosehead is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Utilities Limited and Goosehead Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goosehead Insurance and Canadian Utilities 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 Canadian Utilities Limited 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 Canadian Utilities i.e., Canadian Utilities and Goosehead Insurance go up and down completely randomly.

Pair Corralation between Canadian Utilities and Goosehead Insurance

Assuming the 90 days horizon Canadian Utilities is expected to generate 11.56 times less return on investment than Goosehead Insurance. But when comparing it to its historical volatility, Canadian Utilities Limited is 2.04 times less risky than Goosehead Insurance. It trades about 0.04 of its potential returns per unit of risk. Goosehead Insurance is currently generating about 0.21 of returns per unit of risk over similar time horizon. 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	Weak
Accuracy	98.46%
Values	Daily Returns

Canadian Utilities Limited  vs.  Goosehead Insurance

Canadian Utilities

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Utilities Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Canadian Utilities is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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.

Pair Trading with Canadian Utilities and Goosehead Insurance

The main advantage of trading using opposite Canadian Utilities and Goosehead Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian Utilities 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 Canadian Utilities Limited 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.