Correlation Between Automatic Data and Highlight Communications

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

Diversification Opportunities for Automatic Data and Highlight Communications

0.4

Correlation Coefficient

Automatic Data  Highlight Communications

Very weak diversification

The 3 months correlation between Automatic and Highlight is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Highlight Communications AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highlight 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 Highlight Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highlight Communications has no effect on the direction of Automatic Data i.e., Automatic Data and Highlight Communications go up and down completely randomly.

Pair Corralation between Automatic Data and Highlight Communications

Assuming the 90 days horizon Automatic Data is expected to generate 2.11 times less return on investment than Highlight Communications. But when comparing it to its historical volatility, Automatic Data Processing is 2.42 times less risky than Highlight Communications. It trades about 0.13 of its potential returns per unit of risk. Highlight Communications AG is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  98.00  in Highlight Communications AG on September 26, 2024 and sell it today you would earn a total of  13.00  from holding Highlight Communications AG or generate 13.27% return on investment over 90 days.

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

Automatic Data Processing  vs.  Highlight Communications AG

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.

Highlight Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Highlight Communications AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Highlight Communications is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Automatic Data and Highlight Communications

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

The idea behind Automatic Data Processing and Highlight Communications AG 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.