Correlation Between GM and Workday
Can any of the company-specific risk be diversified away by investing in both GM 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 GM and Workday into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Workday, you can compare the effects of market volatilities on GM 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 GM with a short position of Workday. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Workday.
Diversification Opportunities for GM and Workday
Good diversification
The 3 months correlation between GM and Workday is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Workday in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Workday and GM 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 General Motors 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 GM i.e., GM and Workday go up and down completely randomly.
Pair Corralation between GM and Workday
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Workday. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.15 times less risky than Workday. The stock trades about -0.22 of its potential returns per unit of risk. The Workday is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 23,925 in Workday on November 28, 2024 and sell it today you would earn a total of 270.00 from holding Workday or generate 1.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Workday
Performance |
| Timeline |
| General Motors |
| Workday |
GM and Workday Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Workday
The main advantage of trading using opposite GM and Workday positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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.The idea behind General Motors and Workday 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.| Workday vs. PICKN PAY STORES | Workday vs. Stag Industrial | Workday vs. Nippon Light Metal | Workday vs. BJs Wholesale Club |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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