Correlation Between Guidewire Software and Sempra

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

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

Diversification Opportunities for Guidewire Software and Sempra

0.61

Correlation Coefficient

Guidewire Software  Sempra

Poor diversification

The 3 months correlation between Guidewire and Sempra is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Guidewire Software and Sempra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sempra 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 Sempra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sempra has no effect on the direction of Guidewire Software i.e., Guidewire Software and Sempra go up and down completely randomly.

Pair Corralation between Guidewire Software and Sempra

Assuming the 90 days trading horizon Guidewire Software is expected to generate 8.98 times less return on investment than Sempra. In addition to that, Guidewire Software is 1.57 times more volatile than Sempra. It trades about 0.01 of its total potential returns per unit of risk. Sempra is currently generating about 0.16 per unit of volatility. If you would invest  7,347  in Sempra on October 9, 2024 and sell it today you would earn a total of  1,161  from holding Sempra or generate 15.8% return on investment over 90 days.

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

Guidewire Software  vs.  Sempra

Guidewire Software

Risk-Adjusted Performance

0 of 100

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.

Sempra

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sempra are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sempra reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guidewire Software and Sempra

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

The idea behind Guidewire Software and Sempra 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.