Correlation Between Automatic Data and PNC FINL

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

Diversification Opportunities for Automatic Data and PNC FINL

0.46

Correlation Coefficient

Automatic Data  PNC FINL

Very weak diversification

The 3 months correlation between Automatic and PNC is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and PNC FINL SER in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PNC FINL SER 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 PNC FINL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PNC FINL SER has no effect on the direction of Automatic Data i.e., Automatic Data and PNC FINL go up and down completely randomly.

Pair Corralation between Automatic Data and PNC FINL

Assuming the 90 days horizon Automatic Data Processing is expected to generate 0.85 times more return on investment than PNC FINL. However, Automatic Data Processing is 1.18 times less risky than PNC FINL. It trades about -0.05 of its potential returns per unit of risk. PNC FINL SER is currently generating about -0.13 per unit of risk. If you would invest  28,157  in Automatic Data Processing on December 21, 2024 and sell it today you would lose (1,242) from holding Automatic Data Processing or give up 4.41% of portfolio value over 90 days.

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

Automatic Data Processing  vs.  PNC FINL SER

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.

PNC FINL SER

Risk-Adjusted Performance

Very Weak

Over the last 90 days PNC FINL SER has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Automatic Data and PNC FINL

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

The idea behind Automatic Data Processing and PNC FINL SER 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.