Correlation Between Guidewire Software, and Starbucks

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

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

Diversification Opportunities for Guidewire Software, and Starbucks

0.23

Correlation Coefficient

Guidewire Software,  Starbucks

Modest diversification

The 3 months correlation between Guidewire and Starbucks is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Guidewire Software, and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks 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 Starbucks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Starbucks has no effect on the direction of Guidewire Software, i.e., Guidewire Software, and Starbucks go up and down completely randomly.

Pair Corralation between Guidewire Software, and Starbucks

Assuming the 90 days trading horizon Guidewire Software, is expected to generate 0.78 times more return on investment than Starbucks. However, Guidewire Software, is 1.29 times less risky than Starbucks. It trades about 0.14 of its potential returns per unit of risk. Starbucks is currently generating about 0.0 per unit of risk. If you would invest  8,835  in Guidewire Software, on December 27, 2024 and sell it today you would earn a total of  906.00  from holding Guidewire Software, or generate 10.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	83.05%
Values	Daily Returns

Guidewire Software,  vs.  Starbucks

Guidewire Software,

Risk-Adjusted Performance

Good

Over the last 90 days Guidewire Software, has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat uncertain basic indicators, Guidewire Software, sustained solid returns over the last few months and may actually be approaching a breakup point.

Starbucks

Risk-Adjusted Performance

Very Weak

Over the last 90 days Starbucks has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Starbucks is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Guidewire Software, and Starbucks

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

The idea behind Guidewire Software, and Starbucks 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.