Correlation Between Microsoft and Guidewire Software

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

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

Diversification Opportunities for Microsoft and Guidewire Software

0.07

Correlation Coefficient

Microsoft  Guidewire Software

Significant diversification

The 3 months correlation between Microsoft and Guidewire is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Guidewire Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guidewire Software and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Guidewire Software go up and down completely randomly.

Pair Corralation between Microsoft and Guidewire Software

Assuming the 90 days trading horizon Microsoft is expected to generate 0.42 times more return on investment than Guidewire Software. However, Microsoft is 2.36 times less risky than Guidewire Software. It trades about 0.28 of its potential returns per unit of risk. Guidewire Software is currently generating about 0.04 per unit of risk. If you would invest  38,001  in Microsoft on May 5, 2025 and sell it today you would earn a total of  7,569  from holding Microsoft or generate 19.92% return on investment over 90 days.

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

Microsoft  vs.  Guidewire Software

Microsoft

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Microsoft exhibited solid returns over the last few months and may actually be approaching a breakup point.

Guidewire Software

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Guidewire Software are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Guidewire Software may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Microsoft and Guidewire Software

The main advantage of trading using opposite Microsoft and Guidewire Software positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.