Can any of the company-specific risk be diversified away by investing in both Workday and Amphenol 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 Workday and Amphenol into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Workday and Amphenol, you can compare the effects of market volatilities on Workday and Amphenol 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 Workday with a short position of Amphenol. Check out your portfolio center. Please also check ongoing floating volatility patterns of Workday and Amphenol.
Diversification Opportunities for Workday and Amphenol
The 3 months correlation between Workday and Amphenol is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Workday and Amphenol in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amphenol and Workday 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 Workday are associated (or correlated) with Amphenol. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amphenol has no effect on the direction of Workday i.e., Workday and Amphenol go up and down completely randomly.
Given the investment horizon of 90 days Workday is expected to under-perform the Amphenol. In addition to that, Workday is 3.61 times more volatile than Amphenol. It trades about -0.21 of its total potential returns per unit of risk. Amphenol is currently generating about 0.27 per unit of volatility. If you would invest 12,479 in Amphenol on March 6, 2024 and sell it today you would earn a total of 699.00 from holding Amphenol or generate 5.6% return on investment over 90 days.
Over the last 90 days Workday has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Amphenol are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, Amphenol demonstrated solid returns over the last few months and may actually be approaching a breakup point.