Correlation Between Automatic Data and Airbnb

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

Diversification Opportunities for Automatic Data and Airbnb

0.83
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Automatic and Airbnb is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Airbnb Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Airbnb 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 Airbnb. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Airbnb Inc has no effect on the direction of Automatic Data i.e., Automatic Data and Airbnb go up and down completely randomly.

Pair Corralation between Automatic Data and Airbnb

Assuming the 90 days trading horizon Automatic Data Processing is expected to generate 0.4 times more return on investment than Airbnb. However, Automatic Data Processing is 2.5 times less risky than Airbnb. It trades about 0.16 of its potential returns per unit of risk. Airbnb Inc is currently generating about 0.04 per unit of risk. If you would invest  6,621  in Automatic Data Processing on October 10, 2024 and sell it today you would earn a total of  707.00  from holding Automatic Data Processing or generate 10.68% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy96.55%
ValuesDaily Returns

Automatic Data Processing  vs.  Airbnb Inc

 Performance 
       Timeline  
Automatic Data Processing 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Automatic Data may actually be approaching a critical reversion point that can send shares even higher in February 2025.
Airbnb Inc 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Airbnb Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Airbnb may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Automatic Data and Airbnb Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Automatic Data and Airbnb

The main advantage of trading using opposite Automatic Data and Airbnb positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Automatic Data position performs unexpectedly, Airbnb 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 Airbnb will offset losses from the drop in Airbnb's long position.
The idea behind Automatic Data Processing and Airbnb 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.
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.

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