Correlation Between Automatic Data and Experian Plc

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

Diversification Opportunities for Automatic Data and Experian Plc

0.77

Correlation Coefficient

Automatic Data  Experian Plc

Poor diversification

The 3 months correlation between Automatic and Experian is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Experian plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Experian plc 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 Experian Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Experian plc has no effect on the direction of Automatic Data i.e., Automatic Data and Experian Plc go up and down completely randomly.

Pair Corralation between Automatic Data and Experian Plc

Assuming the 90 days horizon Automatic Data is expected to generate 63.5 times less return on investment than Experian Plc. But when comparing it to its historical volatility, Automatic Data Processing is 1.09 times less risky than Experian Plc. It trades about 0.0 of its potential returns per unit of risk. Experian plc is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,121  in Experian plc on December 30, 2024 and sell it today you would earn a total of  139.00  from holding Experian plc or generate 3.37% 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.  Experian plc

Automatic Data Processing

Risk-Adjusted Performance

Very Weak

Over the last 90 days Automatic Data Processing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Automatic Data is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Experian plc

Risk-Adjusted Performance

Insignificant

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

Pair Trading with Automatic Data and Experian Plc

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

The idea behind Automatic Data Processing and Experian plc 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.