Correlation Between Guidewire Software and ELECOM

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

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

Diversification Opportunities for Guidewire Software and ELECOM

0.72

Correlation Coefficient

Guidewire Software  ELECOM

Poor diversification

The 3 months correlation between Guidewire and ELECOM is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Guidewire Software and ELECOM LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ELECOM LTD 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 ELECOM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ELECOM LTD has no effect on the direction of Guidewire Software i.e., Guidewire Software and ELECOM go up and down completely randomly.

Pair Corralation between Guidewire Software and ELECOM

Assuming the 90 days trading horizon Guidewire Software is expected to generate 1.83 times more return on investment than ELECOM. However, Guidewire Software is 1.83 times more volatile than ELECOM LTD. It trades about 0.08 of its potential returns per unit of risk. ELECOM LTD is currently generating about 0.06 per unit of risk. If you would invest  16,955  in Guidewire Software on April 24, 2025 and sell it today you would earn a total of  1,980  from holding Guidewire Software or generate 11.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Guidewire Software  vs.  ELECOM LTD

Guidewire Software

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Guidewire Software are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Guidewire Software unveiled solid returns over the last few months and may actually be approaching a breakup point.

ELECOM LTD

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ELECOM LTD are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, ELECOM is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Guidewire Software and ELECOM

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

The idea behind Guidewire Software and ELECOM LTD 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.