Correlation Between Waterdrop ADR and Goosehead Insurance

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

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

Diversification Opportunities for Waterdrop ADR and Goosehead Insurance

0.18

Correlation Coefficient

Waterdrop ADR  Goosehead Insurance

Average diversification

The 3 months correlation between Waterdrop and Goosehead is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Waterdrop ADR and Goosehead Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goosehead Insurance and Waterdrop ADR 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 Waterdrop ADR 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 Waterdrop ADR i.e., Waterdrop ADR and Goosehead Insurance go up and down completely randomly.

Pair Corralation between Waterdrop ADR and Goosehead Insurance

Considering the 90-day investment horizon Waterdrop ADR is expected to generate 4.92 times less return on investment than Goosehead Insurance. In addition to that, Waterdrop ADR is 1.18 times more volatile than Goosehead Insurance. It trades about 0.05 of its total potential returns per unit of risk. Goosehead Insurance is currently generating about 0.29 per unit of volatility. If you would invest  8,434  in Goosehead Insurance on August 30, 2024 and sell it today you would earn a total of  4,535  from holding Goosehead Insurance or generate 53.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Waterdrop ADR  vs.  Goosehead Insurance

Waterdrop ADR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Waterdrop ADR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal fundamental indicators, Waterdrop ADR may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Goosehead Insurance

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Goosehead Insurance are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical indicators, Goosehead Insurance exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Waterdrop ADR and Goosehead Insurance

The main advantage of trading using opposite Waterdrop ADR and Goosehead Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Waterdrop ADR 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 Waterdrop ADR 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.