Correlation Between Alfa Financial and Guidewire Software

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

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

Diversification Opportunities for Alfa Financial and Guidewire Software

0.65

Correlation Coefficient

Alfa Financial  Guidewire Software

Poor diversification

The 3 months correlation between Alfa and Guidewire is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Alfa Financial Software and Guidewire Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guidewire Software and Alfa Financial 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 Alfa Financial Software 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 Alfa Financial i.e., Alfa Financial and Guidewire Software go up and down completely randomly.

Pair Corralation between Alfa Financial and Guidewire Software

Assuming the 90 days trading horizon Alfa Financial is expected to generate 1.87 times less return on investment than Guidewire Software. In addition to that, Alfa Financial is 1.25 times more volatile than Guidewire Software. It trades about 0.14 of its total potential returns per unit of risk. Guidewire Software is currently generating about 0.34 per unit of volatility. If you would invest  13,215  in Guidewire Software on September 3, 2024 and sell it today you would earn a total of  5,850  from holding Guidewire Software or generate 44.27% return on investment over 90 days.

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

Alfa Financial Software  vs.  Guidewire Software

Alfa Financial Software

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alfa Financial Software are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Alfa Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Guidewire Software

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Guidewire Software are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Guidewire Software unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alfa Financial and Guidewire Software

The main advantage of trading using opposite Alfa Financial and Guidewire Software positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alfa Financial 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 Alfa Financial Software 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.

Check out your portfolio center.

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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.