Correlation Between Aspen Technology and Guidewire Software

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

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

Diversification Opportunities for Aspen Technology and Guidewire Software

0.85

Correlation Coefficient

Aspen Technology  Guidewire Software

Very poor diversification

The 3 months correlation between Aspen and Guidewire is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Aspen Technology and Guidewire Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guidewire Software and Aspen Technology 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 Aspen Technology are associated (or correlated) with Guidewire Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guidewire Software has no effect on the direction of Aspen Technology i.e., Aspen Technology and Guidewire Software go up and down completely randomly.

Pair Corralation between Aspen Technology and Guidewire Software

Given the investment horizon of 90 days Aspen Technology is expected to generate 3.46 times less return on investment than Guidewire Software. In addition to that, Aspen Technology is 1.12 times more volatile than Guidewire Software. It trades about 0.03 of its total potential returns per unit of risk. Guidewire Software is currently generating about 0.12 per unit of volatility. If you would invest  6,640  in Guidewire Software on August 31, 2024 and sell it today you would earn a total of  13,548  from holding Guidewire Software or generate 204.04% return on investment over 90 days.

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

Aspen Technology  vs.  Guidewire Software

Aspen Technology

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aspen Technology are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Aspen Technology may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Guidewire Software

Risk-Adjusted Performance

22 of 100

Solid

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

Pair Trading with Aspen Technology and Guidewire Software

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

The idea behind Aspen Technology and Guidewire Software 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.