Correlation Between Guidewire Software and Medtronic PLC

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

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

Diversification Opportunities for Guidewire Software and Medtronic PLC

0.44

Correlation Coefficient

Guidewire Software  Medtronic PLC

Very weak diversification

The 3 months correlation between Guidewire and Medtronic is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Guidewire Software and Medtronic PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medtronic PLC 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 Medtronic PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medtronic PLC has no effect on the direction of Guidewire Software i.e., Guidewire Software and Medtronic PLC go up and down completely randomly.

Pair Corralation between Guidewire Software and Medtronic PLC

Assuming the 90 days trading horizon Guidewire Software is expected to generate 2.58 times more return on investment than Medtronic PLC. However, Guidewire Software is 2.58 times more volatile than Medtronic PLC. It trades about 0.01 of its potential returns per unit of risk. Medtronic PLC is currently generating about -0.03 per unit of risk. If you would invest  16,770  in Guidewire Software on October 9, 2024 and sell it today you would lose (70.00) from holding Guidewire Software or give up 0.42% of portfolio value over 90 days.

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

Guidewire Software  vs.  Medtronic PLC

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 comparatively stable basic indicators, Guidewire Software is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Medtronic PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Medtronic PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Medtronic PLC is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Guidewire Software and Medtronic PLC

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

The idea behind Guidewire Software and Medtronic PLC 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.