Correlation Between Automatic Data and Equitable Holdings

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

Diversification Opportunities for Automatic Data and Equitable Holdings

0.93

Correlation Coefficient

Automatic Data  Equitable Holdings

Almost no diversification

The 3 months correlation between Automatic and Equitable is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Equitable Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equitable Holdings 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 Equitable Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equitable Holdings has no effect on the direction of Automatic Data i.e., Automatic Data and Equitable Holdings go up and down completely randomly.

Pair Corralation between Automatic Data and Equitable Holdings

Assuming the 90 days horizon Automatic Data is expected to generate 2.56 times less return on investment than Equitable Holdings. But when comparing it to its historical volatility, Automatic Data Processing is 1.46 times less risky than Equitable Holdings. It trades about 0.06 of its potential returns per unit of risk. Equitable Holdings is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,533  in Equitable Holdings on October 6, 2024 and sell it today you would earn a total of  1,967  from holding Equitable Holdings or generate 77.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.68%
Values	Daily Returns

Automatic Data Processing  vs.  Equitable Holdings

Automatic Data Processing

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Automatic Data may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Equitable Holdings

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Automatic Data and Equitable Holdings

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

The idea behind Automatic Data Processing and Equitable Holdings 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.