Correlation Between Automatic Data and AbbVie

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

Diversification Opportunities for Automatic Data and AbbVie

-0.1

Correlation Coefficient

Automatic Data  AbbVie

Good diversification

The 3 months correlation between Automatic and AbbVie is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and AbbVie Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AbbVie Inc 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 AbbVie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AbbVie Inc has no effect on the direction of Automatic Data i.e., Automatic Data and AbbVie go up and down completely randomly.

Pair Corralation between Automatic Data and AbbVie

Assuming the 90 days trading horizon Automatic Data Processing is expected to under-perform the AbbVie. But the stock apears to be less risky and, when comparing its historical volatility, Automatic Data Processing is 1.84 times less risky than AbbVie. The stock trades about -0.15 of its potential returns per unit of risk. The AbbVie Inc is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  6,917  in AbbVie Inc on October 1, 2024 and sell it today you would lose (50.00) from holding AbbVie Inc or give up 0.72% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	89.47%
Values	Daily Returns

Automatic Data Processing  vs.  AbbVie Inc

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 somewhat weak basic indicators, Automatic Data sustained solid returns over the last few months and may actually be approaching a breakup point.

AbbVie Inc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AbbVie Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, AbbVie is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Automatic Data and AbbVie

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

The idea behind Automatic Data Processing and AbbVie Inc 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.