Correlation Between Automatic Data and GSTechnologies

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

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

Diversification Opportunities for Automatic Data and GSTechnologies

0.69

Correlation Coefficient

Automatic Data  GSTechnologies

Poor diversification

The 3 months correlation between Automatic and GSTechnologies is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and GSTechnologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GSTechnologies and Automatic Data 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 Automatic Data Processing are associated (or correlated) with GSTechnologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GSTechnologies has no effect on the direction of Automatic Data i.e., Automatic Data and GSTechnologies go up and down completely randomly.

Pair Corralation between Automatic Data and GSTechnologies

Assuming the 90 days trading horizon Automatic Data Processing is expected to under-perform the GSTechnologies. But the stock apears to be less risky and, when comparing its historical volatility, Automatic Data Processing is 6.85 times less risky than GSTechnologies. The stock trades about -0.17 of its potential returns per unit of risk. The GSTechnologies is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  137.00  in GSTechnologies on September 23, 2024 and sell it today you would earn a total of  41.00  from holding GSTechnologies or generate 29.93% return on investment over 90 days.

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

Automatic Data Processing  vs.  GSTechnologies

Automatic Data Processing

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Automatic Data may actually be approaching a critical reversion point that can send shares even higher in January 2025.

GSTechnologies

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in GSTechnologies are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, GSTechnologies exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Automatic Data and GSTechnologies

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

The idea behind Automatic Data Processing and GSTechnologies 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.