Correlation Between Guidewire Software and US Bancorp

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

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

Diversification Opportunities for Guidewire Software and US Bancorp

0.7

Correlation Coefficient

Guidewire Software  US Bancorp

Poor diversification

The 3 months correlation between Guidewire and UB5 is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Guidewire Software and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp 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 US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of Guidewire Software i.e., Guidewire Software and US Bancorp go up and down completely randomly.

Pair Corralation between Guidewire Software and US Bancorp

Assuming the 90 days trading horizon Guidewire Software is expected to under-perform the US Bancorp. In addition to that, Guidewire Software is 1.52 times more volatile than US Bancorp. It trades about -0.03 of its total potential returns per unit of risk. US Bancorp is currently generating about 0.1 per unit of volatility. If you would invest  4,500  in US Bancorp on September 21, 2024 and sell it today you would earn a total of  366.00  from holding US Bancorp or generate 8.13% 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.  US Bancorp

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.

US Bancorp

Risk-Adjusted Performance

12 of 100

Good

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

Pair Trading with Guidewire Software and US Bancorp

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

The idea behind Guidewire Software and US Bancorp 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.