Correlation Between SIMS METAL and Goosehead Insurance

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

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

Diversification Opportunities for SIMS METAL and Goosehead Insurance

0.45

Correlation Coefficient

SIMS METAL  Goosehead Insurance

Very weak diversification

The 3 months correlation between SIMS and Goosehead is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding SIMS METAL MGT and Goosehead Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goosehead Insurance and SIMS METAL 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 SIMS METAL MGT 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 SIMS METAL i.e., SIMS METAL and Goosehead Insurance go up and down completely randomly.

Pair Corralation between SIMS METAL and Goosehead Insurance

Assuming the 90 days trading horizon SIMS METAL is expected to generate 2.01 times less return on investment than Goosehead Insurance. But when comparing it to its historical volatility, SIMS METAL MGT is 1.05 times less risky than Goosehead Insurance. It trades about 0.12 of its potential returns per unit of risk. Goosehead Insurance is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  7,818  in Goosehead Insurance on September 17, 2024 and sell it today you would earn a total of  3,282  from holding Goosehead Insurance or generate 41.98% return on investment over 90 days.

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

SIMS METAL MGT  vs.  Goosehead Insurance

SIMS METAL MGT

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SIMS METAL MGT are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain primary indicators, SIMS METAL exhibited solid returns over the last few months and may actually be approaching a breakup point.

Goosehead Insurance

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Goosehead Insurance are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Goosehead Insurance unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SIMS METAL and Goosehead Insurance

The main advantage of trading using opposite SIMS METAL and Goosehead Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SIMS METAL 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 SIMS METAL MGT 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.