Correlation Between Guidewire Software and VERTIV HOLCL

Can any of the company-specific risk be diversified away by investing in both Guidewire Software and VERTIV HOLCL 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 Guidewire Software and VERTIV HOLCL into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Guidewire Software and VERTIV HOLCL A, you can compare the effects of market volatilities on Guidewire Software and VERTIV HOLCL 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 Guidewire Software with a short position of VERTIV HOLCL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guidewire Software and VERTIV HOLCL.

Diversification Opportunities for Guidewire Software and VERTIV HOLCL

0.8

Correlation Coefficient

Guidewire Software  VERTIV HOLCL

Very poor diversification

The 3 months correlation between Guidewire and VERTIV is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Guidewire Software and VERTIV HOLCL A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VERTIV HOLCL A and Guidewire Software 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 Guidewire Software are associated (or correlated) with VERTIV HOLCL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VERTIV HOLCL A has no effect on the direction of Guidewire Software i.e., Guidewire Software and VERTIV HOLCL go up and down completely randomly.

Pair Corralation between Guidewire Software and VERTIV HOLCL

Assuming the 90 days trading horizon Guidewire Software is expected to under-perform the VERTIV HOLCL. But the stock apears to be less risky and, when comparing its historical volatility, Guidewire Software is 1.13 times less risky than VERTIV HOLCL. The stock trades about -0.11 of its potential returns per unit of risk. The VERTIV HOLCL A is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  11,630  in VERTIV HOLCL A on September 18, 2024 and sell it today you would lose (40.00) from holding VERTIV HOLCL A or give up 0.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Guidewire Software  vs.  VERTIV HOLCL A

Guidewire Software

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Guidewire Software are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Guidewire Software may actually be approaching a critical reversion point that can send shares even higher in January 2025.

VERTIV HOLCL A

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in VERTIV HOLCL A are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, VERTIV HOLCL reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guidewire Software and VERTIV HOLCL

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

The idea behind Guidewire Software and VERTIV HOLCL A 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.