Correlation Between National Beverage and Guidewire Software

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

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

Diversification Opportunities for National Beverage and Guidewire Software

0.57

Correlation Coefficient

National Beverage  Guidewire Software

Very weak diversification

The 3 months correlation between National and Guidewire is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding National Beverage Corp and Guidewire Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guidewire Software and National Beverage 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 National Beverage Corp 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 National Beverage i.e., National Beverage and Guidewire Software go up and down completely randomly.

Pair Corralation between National Beverage and Guidewire Software

Assuming the 90 days horizon National Beverage Corp is expected to under-perform the Guidewire Software. But the stock apears to be less risky and, when comparing its historical volatility, National Beverage Corp is 1.3 times less risky than Guidewire Software. The stock trades about -0.2 of its potential returns per unit of risk. The Guidewire Software is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  16,655  in Guidewire Software on October 26, 2024 and sell it today you would earn a total of  1,675  from holding Guidewire Software or generate 10.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.74%
Values	Daily Returns

National Beverage Corp  vs.  Guidewire Software

National Beverage Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 uncertain basic indicators, Guidewire Software may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with National Beverage and Guidewire Software

The main advantage of trading using opposite National Beverage and Guidewire Software positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Beverage 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 National Beverage Corp 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.