Correlation Between Automatic Data and Entravision Communications

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

Diversification Opportunities for Automatic Data and Entravision Communications

0.9

Correlation Coefficient

Automatic Data  Entravision Communications

Almost no diversification

The 3 months correlation between Automatic and Entravision is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Entravision Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entravision Communications 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 Entravision Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entravision Communications has no effect on the direction of Automatic Data i.e., Automatic Data and Entravision Communications go up and down completely randomly.

Pair Corralation between Automatic Data and Entravision Communications

Assuming the 90 days horizon Automatic Data is expected to generate 3.6 times less return on investment than Entravision Communications. But when comparing it to its historical volatility, Automatic Data Processing is 3.26 times less risky than Entravision Communications. It trades about 0.13 of its potential returns per unit of risk. Entravision Communications is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  193.00  in Entravision Communications on September 26, 2024 and sell it today you would earn a total of  45.00  from holding Entravision Communications or generate 23.32% 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.  Entravision Communications

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.

Entravision Communications

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Entravision Communications are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Entravision Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Automatic Data and Entravision Communications

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

The idea behind Automatic Data Processing and Entravision Communications 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.