Correlation Between Xenia Hotels and Automatic Data

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

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

Diversification Opportunities for Xenia Hotels and Automatic Data

0.77

Correlation Coefficient

Xenia Hotels  Automatic Data

Poor diversification

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

Pair Corralation between Xenia Hotels and Automatic Data

Assuming the 90 days trading horizon Xenia Hotels is expected to generate 3.0 times less return on investment than Automatic Data. In addition to that, Xenia Hotels is 1.93 times more volatile than Automatic Data Processing. It trades about 0.03 of its total potential returns per unit of risk. Automatic Data Processing is currently generating about 0.16 per unit of volatility. If you would invest  25,661  in Automatic Data Processing on October 5, 2024 and sell it today you would earn a total of  2,704  from holding Automatic Data Processing or generate 10.54% return on investment over 90 days.

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

Xenia Hotels Resorts  vs.  Automatic Data Processing

Xenia Hotels Resorts

Risk-Adjusted Performance

0 of 100

Weak

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

Automatic Data Processing

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Automatic Data Processing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Automatic Data may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Xenia Hotels and Automatic Data

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

The idea behind Xenia Hotels Resorts and Automatic Data Processing 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.