Correlation Between Guidewire Software and Blackbaud

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

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

Diversification Opportunities for Guidewire Software and Blackbaud

-0.51

Correlation Coefficient

Guidewire Software  Blackbaud

Excellent diversification

The 3 months correlation between Guidewire and Blackbaud is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Guidewire Software and Blackbaud in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blackbaud 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 Blackbaud. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blackbaud has no effect on the direction of Guidewire Software i.e., Guidewire Software and Blackbaud go up and down completely randomly.

Pair Corralation between Guidewire Software and Blackbaud

Given the investment horizon of 90 days Guidewire Software is expected to under-perform the Blackbaud. But the stock apears to be less risky and, when comparing its historical volatility, Guidewire Software is 1.45 times less risky than Blackbaud. The stock trades about -0.15 of its potential returns per unit of risk. The Blackbaud is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  7,531  in Blackbaud on February 1, 2024 and sell it today you would earn a total of  261.00  from holding Blackbaud or generate 3.47% return on investment over 90 days.

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

Guidewire Software  vs.  Blackbaud

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Blackbaud

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Guidewire Software and Blackbaud

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

The idea behind Guidewire Software and Blackbaud 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.