Correlation Between Select Energy and Automatic Data

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

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

Diversification Opportunities for Select Energy and Automatic Data

0.89

Correlation Coefficient

Select Energy  Automatic Data

Very poor diversification

The 3 months correlation between Select and Automatic is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Select Energy Services 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 Select Energy 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 Select Energy Services 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 Select Energy i.e., Select Energy and Automatic Data go up and down completely randomly.

Pair Corralation between Select Energy and Automatic Data

Assuming the 90 days trading horizon Select Energy Services is expected to generate 1.93 times more return on investment than Automatic Data. However, Select Energy is 1.93 times more volatile than Automatic Data Processing. It trades about 0.04 of its potential returns per unit of risk. Automatic Data Processing is currently generating about 0.01 per unit of risk. If you would invest  1,283  in Select Energy Services on September 19, 2024 and sell it today you would earn a total of  18.00  from holding Select Energy Services or generate 1.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

Select Energy Services  vs.  Automatic Data Processing

Select Energy Services

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Select Energy Services are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Select Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Automatic Data Processing

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Automatic Data reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Select Energy and Automatic Data

The main advantage of trading using opposite Select Energy and Automatic Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Select Energy 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 Select Energy Services 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 CEOs Directory module to screen CEOs from public companies around the world.