Correlation Between Automatic Data and CGN Power

Can any of the company-specific risk be diversified away by investing in both Automatic Data and CGN Power 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 CGN Power 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 CGN Power Co, you can compare the effects of market volatilities on Automatic Data and CGN Power 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 CGN Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Automatic Data and CGN Power.

Diversification Opportunities for Automatic Data and CGN Power

0.07

Correlation Coefficient

Automatic Data  CGN Power

Significant diversification

The 3 months correlation between Automatic and CGN is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and CGN Power Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CGN Power 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 CGN Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CGN Power has no effect on the direction of Automatic Data i.e., Automatic Data and CGN Power go up and down completely randomly.

Pair Corralation between Automatic Data and CGN Power

Assuming the 90 days horizon Automatic Data Processing is expected to generate 0.49 times more return on investment than CGN Power. However, Automatic Data Processing is 2.04 times less risky than CGN Power. It trades about -0.04 of its potential returns per unit of risk. CGN Power Co is currently generating about -0.06 per unit of risk. If you would invest  28,157  in Automatic Data Processing on December 21, 2024 and sell it today you would lose (1,027) from holding Automatic Data Processing or give up 3.65% of portfolio value over 90 days.

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

Automatic Data Processing  vs.  CGN Power Co

Automatic Data Processing

Risk-Adjusted Performance

Very Weak

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

CGN Power

Risk-Adjusted Performance

Very Weak

Over the last 90 days CGN Power Co 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 stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Automatic Data and CGN Power

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

The idea behind Automatic Data Processing and CGN Power Co 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.