Correlation Between Automatic Data and AECOM TECHNOLOGY

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

Diversification Opportunities for Automatic Data and AECOM TECHNOLOGY

0.94

Correlation Coefficient

Automatic Data  AECOM TECHNOLOGY

Almost no diversification

The 3 months correlation between Automatic and AECOM is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and AECOM TECHNOLOGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AECOM TECHNOLOGY 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 AECOM TECHNOLOGY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AECOM TECHNOLOGY has no effect on the direction of Automatic Data i.e., Automatic Data and AECOM TECHNOLOGY go up and down completely randomly.

Pair Corralation between Automatic Data and AECOM TECHNOLOGY

Assuming the 90 days horizon Automatic Data is expected to generate 1.42 times less return on investment than AECOM TECHNOLOGY. But when comparing it to its historical volatility, Automatic Data Processing is 1.55 times less risky than AECOM TECHNOLOGY. It trades about 0.26 of its potential returns per unit of risk. AECOM TECHNOLOGY is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  8,679  in AECOM TECHNOLOGY on September 5, 2024 and sell it today you would earn a total of  2,321  from holding AECOM TECHNOLOGY or generate 26.74% return on investment over 90 days.

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

Automatic Data Processing  vs.  AECOM TECHNOLOGY

Automatic Data Processing

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 20 (%) 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.

AECOM TECHNOLOGY

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in AECOM TECHNOLOGY are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, AECOM TECHNOLOGY exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Automatic Data and AECOM TECHNOLOGY

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

The idea behind Automatic Data Processing and AECOM TECHNOLOGY 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.