Correlation Between Arch Capital and Waterdrop ADR

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

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

Diversification Opportunities for Arch Capital and Waterdrop ADR

-0.27

Correlation Coefficient

Arch Capital  Waterdrop ADR

Very good diversification

The 3 months correlation between Arch and Waterdrop is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Arch Capital Group and Waterdrop ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waterdrop ADR and Arch Capital 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 Arch Capital Group 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 Arch Capital i.e., Arch Capital and Waterdrop ADR go up and down completely randomly.

Pair Corralation between Arch Capital and Waterdrop ADR

Assuming the 90 days horizon Arch Capital Group is expected to under-perform the Waterdrop ADR. But the preferred stock apears to be less risky and, when comparing its historical volatility, Arch Capital Group is 4.42 times less risky than Waterdrop ADR. The preferred stock trades about -0.06 of its potential returns per unit of risk. The Waterdrop ADR is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  114.00  in Waterdrop ADR on January 13, 2025 and sell it today you would earn a total of  7.00  from holding Waterdrop ADR or generate 6.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Arch Capital Group  vs.  Waterdrop ADR

Arch Capital Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arch Capital Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, Arch Capital is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Waterdrop ADR

Risk-Adjusted Performance

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 May 2025.

Pair Trading with Arch Capital and Waterdrop ADR

The main advantage of trading using opposite Arch Capital and Waterdrop ADR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arch Capital 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 Arch Capital Group 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 Commodity Directory module to find actively traded commodities issued by global exchanges.