Correlation Between Guidewire Software and Salesforce

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

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

Diversification Opportunities for Guidewire Software and Salesforce

0.15

Correlation Coefficient

Guidewire Software  Salesforce

Average diversification

The 3 months correlation between Guidewire and Salesforce is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Guidewire Software and Salesforce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Salesforce 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 Salesforce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Salesforce has no effect on the direction of Guidewire Software i.e., Guidewire Software and Salesforce go up and down completely randomly.

Pair Corralation between Guidewire Software and Salesforce

Given the investment horizon of 90 days Guidewire Software is expected to generate 1.22 times less return on investment than Salesforce. In addition to that, Guidewire Software is 1.04 times more volatile than Salesforce. It trades about 0.1 of its total potential returns per unit of risk. Salesforce is currently generating about 0.13 per unit of volatility. If you would invest  25,601  in Salesforce on September 26, 2024 and sell it today you would earn a total of  8,842  from holding Salesforce or generate 34.54% return on investment over 90 days.

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

Guidewire Software  vs.  Salesforce

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 rather sound basic indicators, Guidewire Software is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Salesforce

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Salesforce are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Salesforce displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guidewire Software and Salesforce

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

The idea behind Guidewire Software and Salesforce 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.