Correlation Between Workday and Shopify

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

By analyzing existing cross correlation between Workday and Shopify, you can compare the effects of market volatilities on Workday and Shopify 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 Shopify. Check out your portfolio center. Please also check ongoing floating volatility patterns of Workday and Shopify.

Diversification Opportunities for Workday and Shopify

0.77

Correlation Coefficient

Workday  Shopify

Poor diversification

The 3 months correlation between Workday and Shopify is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Workday and Shopify in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shopify 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 Shopify. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shopify has no effect on the direction of Workday i.e., Workday and Shopify go up and down completely randomly.

Pair Corralation between Workday and Shopify

Assuming the 90 days horizon Workday is expected to generate 2.97 times less return on investment than Shopify. But when comparing it to its historical volatility, Workday is 1.67 times less risky than Shopify. It trades about 0.04 of its potential returns per unit of risk. Shopify is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  5,670  in Shopify on September 1, 2024 and sell it today you would earn a total of  5,274  from holding Shopify or generate 93.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.74%
Values	Daily Returns

Workday  vs.  Shopify

Workday

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Workday has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Workday is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Shopify

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shopify are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Shopify reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Workday and Shopify

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

The idea behind Workday and Shopify 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.