Correlation Between Guidewire Software and Cars

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

By analyzing existing cross correlation between Guidewire Software and Cars Inc, you can compare the effects of market volatilities on Guidewire Software and Cars 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 Cars. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guidewire Software and Cars.

Diversification Opportunities for Guidewire Software and Cars

0.53

Correlation Coefficient

Guidewire Software  Cars

Very weak diversification

The 3 months correlation between Guidewire and Cars is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Guidewire Software and Cars Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cars Inc 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 Cars. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cars Inc has no effect on the direction of Guidewire Software i.e., Guidewire Software and Cars go up and down completely randomly.

Pair Corralation between Guidewire Software and Cars

Assuming the 90 days trading horizon Guidewire Software is expected to generate 0.99 times more return on investment than Cars. However, Guidewire Software is 1.01 times less risky than Cars. It trades about 0.04 of its potential returns per unit of risk. Cars Inc is currently generating about 0.04 per unit of risk. If you would invest  15,560  in Guidewire Software on September 19, 2024 and sell it today you would earn a total of  735.00  from holding Guidewire Software or generate 4.72% return on investment over 90 days.

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

Guidewire Software  vs.  Cars Inc

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 fragile basic indicators, Guidewire Software may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Cars Inc

Risk-Adjusted Performance

3 of 100

Insignificant

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

Pair Trading with Guidewire Software and Cars

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

The idea behind Guidewire Software and Cars Inc 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 Transaction History module to view history of all your transactions and understand their impact on performance.