Correlation Between TRI CHEMICAL and Automatic Data

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

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

Diversification Opportunities for TRI CHEMICAL and Automatic Data

-0.87

Correlation Coefficient

TRI CHEMICAL  Automatic Data

Pay attention - limited upside

The 3 months correlation between TRI and Automatic is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding TRI CHEMICAL LABORATINC 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 TRI CHEMICAL 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 TRI CHEMICAL LABORATINC 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 TRI CHEMICAL i.e., TRI CHEMICAL and Automatic Data go up and down completely randomly.

Pair Corralation between TRI CHEMICAL and Automatic Data

Assuming the 90 days horizon TRI CHEMICAL LABORATINC is expected to under-perform the Automatic Data. In addition to that, TRI CHEMICAL is 2.14 times more volatile than Automatic Data Processing. It trades about -0.08 of its total potential returns per unit of risk. Automatic Data Processing is currently generating about 0.13 per unit of volatility. If you would invest  26,551  in Automatic Data Processing on September 26, 2024 and sell it today you would earn a total of  1,754  from holding Automatic Data Processing or generate 6.61% return on investment over 90 days.

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

TRI CHEMICAL LABORATINC  vs.  Automatic Data Processing

TRI CHEMICAL LABORATINC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TRI CHEMICAL LABORATINC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 TRI CHEMICAL and Automatic Data

The main advantage of trading using opposite TRI CHEMICAL and Automatic Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TRI CHEMICAL 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 TRI CHEMICAL LABORATINC 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.

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.