Correlation Between Eisai and Guidewire Software

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

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

Diversification Opportunities for Eisai and Guidewire Software

-0.06

Correlation Coefficient

Eisai  Guidewire Software

Good diversification

The 3 months correlation between Eisai and Guidewire is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Eisai Co and Guidewire Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guidewire Software and Eisai 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 Eisai Co 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 Eisai i.e., Eisai and Guidewire Software go up and down completely randomly.

Pair Corralation between Eisai and Guidewire Software

Assuming the 90 days horizon Eisai Co is expected to under-perform the Guidewire Software. But the stock apears to be less risky and, when comparing its historical volatility, Eisai Co is 1.96 times less risky than Guidewire Software. The stock trades about -0.41 of its potential returns per unit of risk. The Guidewire Software is currently generating about -0.2 of returns per unit of risk over similar time horizon. If you would invest  19,275  in Guidewire Software on October 4, 2024 and sell it today you would lose (2,985) from holding Guidewire Software or give up 15.49% of portfolio value over 90 days.

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

Eisai Co  vs.  Guidewire Software

Eisai

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eisai Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Guidewire Software

Risk-Adjusted Performance

0 of 100

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 Eisai and Guidewire Software

The main advantage of trading using opposite Eisai and Guidewire Software positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eisai 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 Eisai Co 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.