Correlation Between Automatic Data and Heartland Express

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

Diversification Opportunities for Automatic Data and Heartland Express

0.72

Correlation Coefficient

Automatic Data  Heartland Express

Poor diversification

The 3 months correlation between Automatic and Heartland is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Heartland Express in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heartland Express 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 Heartland Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heartland Express has no effect on the direction of Automatic Data i.e., Automatic Data and Heartland Express go up and down completely randomly.

Pair Corralation between Automatic Data and Heartland Express

Assuming the 90 days horizon Automatic Data Processing is expected to generate 0.65 times more return on investment than Heartland Express. However, Automatic Data Processing is 1.55 times less risky than Heartland Express. It trades about 0.11 of its potential returns per unit of risk. Heartland Express is currently generating about 0.05 per unit of risk. If you would invest  26,556  in Automatic Data Processing on October 25, 2024 and sell it today you would earn a total of  2,104  from holding Automatic Data Processing or generate 7.92% return on investment over 90 days.

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

Automatic Data Processing  vs.  Heartland Express

Automatic Data Processing

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Automatic Data may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Heartland Express

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Heartland Express are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Heartland Express is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Automatic Data and Heartland Express

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

The idea behind Automatic Data Processing and Heartland Express 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.

Check out your portfolio center.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.