Correlation Between Snowflake and Workday

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

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

Diversification Opportunities for Snowflake and Workday

0.64

Correlation Coefficient

Snowflake  Workday

Poor diversification

The 3 months correlation between Snowflake and Workday is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Snowflake and Workday in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Workday and Snowflake 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 Snowflake 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 Snowflake i.e., Snowflake and Workday go up and down completely randomly.

Pair Corralation between Snowflake and Workday

Given the investment horizon of 90 days Snowflake is expected to generate 1.4 times more return on investment than Workday. However, Snowflake is 1.4 times more volatile than Workday. It trades about 0.0 of its potential returns per unit of risk. Workday is currently generating about -0.06 per unit of risk. If you would invest  15,497  in Snowflake on December 30, 2024 and sell it today you would lose (434.00) from holding Snowflake or give up 2.8% of portfolio value over 90 days.

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

Snowflake  vs.  Workday

Snowflake

Risk-Adjusted Performance

Very Weak

Over the last 90 days Snowflake has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Snowflake is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Workday

Risk-Adjusted Performance

Very Weak

Over the last 90 days Workday has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Snowflake and Workday

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

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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.