Correlation Between Model N and MondayCom

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

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

Diversification Opportunities for Model N and MondayCom

0.6

Correlation Coefficient

Model N  MondayCom

Poor diversification

The 3 months correlation between Model and MondayCom is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Model N and MondayCom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MondayCom and Model N 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 Model N are associated (or correlated) with MondayCom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MondayCom has no effect on the direction of Model N i.e., Model N and MondayCom go up and down completely randomly.

Pair Corralation between Model N and MondayCom

Given the investment horizon of 90 days Model N is expected to under-perform the MondayCom. But the stock apears to be less risky and, when comparing its historical volatility, Model N is 1.55 times less risky than MondayCom. The stock trades about -0.03 of its potential returns per unit of risk. The MondayCom is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  12,254  in MondayCom on September 4, 2024 and sell it today you would earn a total of  15,216  from holding MondayCom or generate 124.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	77.78%
Values	Daily Returns

Model N  vs.  MondayCom

Model N

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Model N has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Model N is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

MondayCom

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MondayCom are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, MondayCom showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Model N and MondayCom

The main advantage of trading using opposite Model N and MondayCom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Model N position performs unexpectedly, MondayCom 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 MondayCom will offset losses from the drop in MondayCom's long position.

The idea behind Model N and MondayCom 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.