Correlation Between CNH Industrial and Guidewire Software

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

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

Diversification Opportunities for CNH Industrial and Guidewire Software

0.76

Correlation Coefficient

CNH Industrial  Guidewire Software

Poor diversification

The 3 months correlation between CNH and Guidewire is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding CNH Industrial NV and Guidewire Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guidewire Software and CNH Industrial 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 CNH Industrial NV 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 CNH Industrial i.e., CNH Industrial and Guidewire Software go up and down completely randomly.

Pair Corralation between CNH Industrial and Guidewire Software

Assuming the 90 days horizon CNH Industrial NV is expected to generate 0.78 times more return on investment than Guidewire Software. However, CNH Industrial NV is 1.29 times less risky than Guidewire Software. It trades about 0.05 of its potential returns per unit of risk. Guidewire Software is currently generating about -0.01 per unit of risk. If you would invest  1,155  in CNH Industrial NV on December 4, 2024 and sell it today you would earn a total of  58.00  from holding CNH Industrial NV or generate 5.02% return on investment over 90 days.

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

CNH Industrial NV  vs.  Guidewire Software

CNH Industrial NV

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CNH Industrial NV are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CNH Industrial may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Guidewire Software

Risk-Adjusted Performance

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.

Pair Trading with CNH Industrial and Guidewire Software

The main advantage of trading using opposite CNH Industrial and Guidewire Software positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CNH Industrial 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 CNH Industrial NV 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.