Correlation Between Automatic Data and Clean Energy

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

Diversification Opportunities for Automatic Data and Clean Energy

0.47

Correlation Coefficient

Automatic Data  Clean Energy

Very weak diversification

The 3 months correlation between Automatic and Clean is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Clean Energy Fuels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clean Energy Fuels 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 Clean Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clean Energy Fuels has no effect on the direction of Automatic Data i.e., Automatic Data and Clean Energy go up and down completely randomly.

Pair Corralation between Automatic Data and Clean Energy

Assuming the 90 days horizon Automatic Data Processing is expected to generate 0.3 times more return on investment than Clean Energy. However, Automatic Data Processing is 3.28 times less risky than Clean Energy. It trades about 0.0 of its potential returns per unit of risk. Clean Energy Fuels is currently generating about -0.12 per unit of risk. If you would invest  28,216  in Automatic Data Processing on December 30, 2024 and sell it today you would lose (161.00) from holding Automatic Data Processing or give up 0.57% 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.  Clean Energy Fuels

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.

Clean Energy Fuels

Risk-Adjusted Performance

Very Weak

Over the last 90 days Clean Energy Fuels has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Automatic Data and Clean Energy

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

The idea behind Automatic Data Processing and Clean Energy Fuels 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.