Correlation Between S A P and Workday

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

By analyzing existing cross correlation between SAP SE and Workday, you can compare the effects of market volatilities on S A P 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 S A P with a short position of Workday. Check out your portfolio center. Please also check ongoing floating volatility patterns of S A P and Workday.

Diversification Opportunities for S A P and Workday

0.83

Correlation Coefficient

S A P  Workday

Very poor diversification

The 3 months correlation between SAP and Workday is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding SAP SE and Workday in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Workday and S A P 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 SAP SE 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 S A P i.e., S A P and Workday go up and down completely randomly.

Pair Corralation between S A P and Workday

Assuming the 90 days horizon S A P is expected to generate 1.1 times less return on investment than Workday. But when comparing it to its historical volatility, SAP SE is 1.8 times less risky than Workday. It trades about 0.2 of its potential returns per unit of risk. Workday is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  21,590  in Workday on September 28, 2024 and sell it today you would earn a total of  3,755  from holding Workday or generate 17.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

SAP SE  vs.  Workday

SAP SE

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, S A P reported solid returns over the last few months and may actually be approaching a breakup point.

Workday

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Workday are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Workday reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with S A P and Workday

The main advantage of trading using opposite S A P and Workday positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if S A P 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 SAP SE 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.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.