Correlation Between Workday and Merck
Can any of the company-specific risk be diversified away by investing in both Workday and Merck 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 Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Workday and Merck Company, you can compare the effects of market volatilities on Workday and Merck 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 Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Workday and Merck.
Diversification Opportunities for Workday and Merck
Good diversification
The 3 months correlation between Workday and Merck is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Workday and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company 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 Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Workday i.e., Workday and Merck go up and down completely randomly.
Pair Corralation between Workday and Merck
Given the investment horizon of 90 days Workday is expected to under-perform the Merck. But the stock apears to be less risky and, when comparing its historical volatility, Workday is 1.46 times less risky than Merck. The stock trades about -0.38 of its potential returns per unit of risk. The Merck Company is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 12,531 in Merck Company on January 25, 2024 and sell it today you would earn a total of 185.00 from holding Merck Company or generate 1.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Workday vs. Merck Company
Performance |
| Timeline |
| Workday |
| Merck Company |
Workday and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Workday and Merck
The main advantage of trading using opposite Workday and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Workday position performs unexpectedly, Merck 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 Merck will offset losses from the drop in Merck's long position.| Workday vs. Intuit Inc | Workday vs. Zoom Video Communications | Workday vs. ServiceNow | Workday vs. Snowflake |
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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