Correlation Between Automatic Data and Albemarle

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

Diversification Opportunities for Automatic Data and Albemarle

-0.04

Correlation Coefficient

Automatic Data  Albemarle

Good diversification

The 3 months correlation between Automatic and Albemarle is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Albemarle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Albemarle 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 Albemarle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Albemarle has no effect on the direction of Automatic Data i.e., Automatic Data and Albemarle go up and down completely randomly.

Pair Corralation between Automatic Data and Albemarle

Assuming the 90 days horizon Automatic Data Processing is expected to generate 0.49 times more return on investment than Albemarle. However, Automatic Data Processing is 2.05 times less risky than Albemarle. It trades about -0.04 of its potential returns per unit of risk. Albemarle is currently generating about -0.08 per unit of risk. If you would invest  28,157  in Automatic Data Processing on December 23, 2024 and sell it today you would lose (1,032) from holding Automatic Data Processing or give up 3.67% of portfolio value over 90 days.

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

Automatic Data Processing  vs.  Albemarle

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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Albemarle

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Automatic Data and Albemarle

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

The idea behind Automatic Data Processing and Albemarle 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.