Correlation Between Descartes Systems and Guidewire Software

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

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

Diversification Opportunities for Descartes Systems and Guidewire Software

0.36

Correlation Coefficient

Descartes Systems  Guidewire Software

Weak diversification

The 3 months correlation between Descartes and Guidewire is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Descartes Systems Group and Guidewire Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guidewire Software and Descartes Systems 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 Descartes Systems Group 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 Descartes Systems i.e., Descartes Systems and Guidewire Software go up and down completely randomly.

Pair Corralation between Descartes Systems and Guidewire Software

Given the investment horizon of 90 days Descartes Systems Group is expected to generate 0.7 times more return on investment than Guidewire Software. However, Descartes Systems Group is 1.44 times less risky than Guidewire Software. It trades about 0.17 of its potential returns per unit of risk. Guidewire Software is currently generating about 0.0 per unit of risk. If you would invest  10,303  in Descartes Systems Group on September 19, 2024 and sell it today you would earn a total of  1,622  from holding Descartes Systems Group or generate 15.74% return on investment over 90 days.

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

Descartes Systems Group  vs.  Guidewire Software

Descartes Systems

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Descartes Systems Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, Descartes Systems showed solid returns over the last few months and may actually be approaching a breakup point.

Guidewire Software

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guidewire Software has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Guidewire Software is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Descartes Systems and Guidewire Software

The main advantage of trading using opposite Descartes Systems and Guidewire Software positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Descartes Systems 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 Descartes Systems Group 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.

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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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.