Correlation Between Automatic Data and NISSAN CHEMICAL

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

Diversification Opportunities for Automatic Data and NISSAN CHEMICAL

0.22

Correlation Coefficient

Automatic Data  NISSAN CHEMICAL

Modest diversification

The 3 months correlation between Automatic and NISSAN is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and NISSAN CHEMICAL IND in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NISSAN CHEMICAL IND 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 NISSAN CHEMICAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NISSAN CHEMICAL IND has no effect on the direction of Automatic Data i.e., Automatic Data and NISSAN CHEMICAL go up and down completely randomly.

Pair Corralation between Automatic Data and NISSAN CHEMICAL

Assuming the 90 days horizon Automatic Data Processing is expected to generate 0.7 times more return on investment than NISSAN CHEMICAL. However, Automatic Data Processing is 1.44 times less risky than NISSAN CHEMICAL. It trades about 0.06 of its potential returns per unit of risk. NISSAN CHEMICAL IND is currently generating about -0.04 per unit of risk. If you would invest  22,772  in Automatic Data Processing on September 28, 2024 and sell it today you would earn a total of  5,533  from holding Automatic Data Processing or generate 24.3% return on investment over 90 days.

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

Automatic Data Processing  vs.  NISSAN CHEMICAL IND

Automatic Data Processing

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 17 (%) 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.

NISSAN CHEMICAL IND

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NISSAN CHEMICAL IND has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, NISSAN CHEMICAL 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 NISSAN CHEMICAL

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

The idea behind Automatic Data Processing and NISSAN CHEMICAL IND 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.