Correlation Between Microsoft and Workday
Can any of the company-specific risk be diversified away by investing in both Microsoft and Workday 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 Workday into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Workday, you can compare the effects of market volatilities on Microsoft and Workday 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 Workday. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Workday.
Diversification Opportunities for Microsoft and Workday
Very good diversification
The 3 months correlation between Microsoft and Workday is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Workday in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Workday 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 Workday. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Workday has no effect on the direction of Microsoft i.e., Microsoft and Workday go up and down completely randomly.
Pair Corralation between Microsoft and Workday
Given the investment horizon of 90 days Microsoft is expected to generate 1.2 times more return on investment than Workday. However, Microsoft is 1.2 times more volatile than Workday. It trades about -0.19 of its potential returns per unit of risk. Workday is currently generating about -0.37 per unit of risk. If you would invest 42,141 in Microsoft on January 19, 2024 and sell it today you would lose (1,714) from holding Microsoft or give up 4.07% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Microsoft vs. Workday
Performance |
Timeline |
Microsoft |
Workday |
Microsoft and Workday Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Microsoft and Workday
The main advantage of trading using opposite Microsoft and Workday positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft position performs unexpectedly, Workday 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 Workday will offset losses from the drop in Workday's long position.Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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