Correlation Between Goosehead Insurance and Waterdrop ADR

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

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

Diversification Opportunities for Goosehead Insurance and Waterdrop ADR

0.32

Correlation Coefficient

Goosehead Insurance  Waterdrop ADR

Weak diversification

The 3 months correlation between Goosehead and Waterdrop is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Goosehead Insurance and Waterdrop ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waterdrop ADR 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 Waterdrop ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waterdrop ADR has no effect on the direction of Goosehead Insurance i.e., Goosehead Insurance and Waterdrop ADR go up and down completely randomly.

Pair Corralation between Goosehead Insurance and Waterdrop ADR

Given the investment horizon of 90 days Goosehead Insurance is expected to generate 2.78 times less return on investment than Waterdrop ADR. In addition to that, Goosehead Insurance is 1.03 times more volatile than Waterdrop ADR. It trades about 0.03 of its total potential returns per unit of risk. Waterdrop ADR is currently generating about 0.07 per unit of volatility. If you would invest  113.00  in Waterdrop ADR on November 28, 2024 and sell it today you would earn a total of  13.00  from holding Waterdrop ADR or generate 11.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Goosehead Insurance  vs.  Waterdrop ADR

Goosehead Insurance

Risk-Adjusted Performance

Weak

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

Waterdrop ADR

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Waterdrop ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal fundamental indicators, Waterdrop ADR demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Goosehead Insurance and Waterdrop ADR

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

The idea behind Goosehead Insurance and Waterdrop ADR 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.