Correlation Between Automatic Data and Alliance Data

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

Diversification Opportunities for Automatic Data and Alliance Data

0.8

Correlation Coefficient

Automatic Data  Alliance Data

Very poor diversification

The 3 months correlation between Automatic and Alliance is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Alliance Data Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliance Data Systems 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 Alliance Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliance Data Systems has no effect on the direction of Automatic Data i.e., Automatic Data and Alliance Data go up and down completely randomly.

Pair Corralation between Automatic Data and Alliance Data

Assuming the 90 days horizon Automatic Data Processing is expected to generate 0.69 times more return on investment than Alliance Data. However, Automatic Data Processing is 1.46 times less risky than Alliance Data. It trades about 0.05 of its potential returns per unit of risk. Alliance Data Systems is currently generating about 0.0 per unit of risk. If you would invest  28,305  in Automatic Data Processing on October 23, 2024 and sell it today you would earn a total of  230.00  from holding Automatic Data Processing or generate 0.81% return on investment over 90 days.

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

Automatic Data Processing  vs.  Alliance Data Systems

Automatic Data Processing

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Automatic Data may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Alliance Data Systems

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Data Systems are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady fundamental indicators, Alliance Data unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Automatic Data and Alliance Data

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

The idea behind Automatic Data Processing and Alliance Data Systems 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.