Correlation Between Automatic Data and Prudential Financial

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

Diversification Opportunities for Automatic Data and Prudential Financial

0.45

Correlation Coefficient

Automatic Data  Prudential Financial

Very weak diversification

The 3 months correlation between Automatic and Prudential is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Prudential Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial 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 Prudential Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Financial has no effect on the direction of Automatic Data i.e., Automatic Data and Prudential Financial go up and down completely randomly.

Pair Corralation between Automatic Data and Prudential Financial

Assuming the 90 days trading horizon Automatic Data Processing is expected to generate 0.61 times more return on investment than Prudential Financial. However, Automatic Data Processing is 1.64 times less risky than Prudential Financial. It trades about 0.01 of its potential returns per unit of risk. Prudential Financial is currently generating about -0.2 per unit of risk. If you would invest  7,671  in Automatic Data Processing on December 1, 2024 and sell it today you would earn a total of  17.00  from holding Automatic Data Processing or generate 0.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.08%
Values	Daily Returns

Automatic Data Processing  vs.  Prudential Financial

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 somewhat strong basic indicators, Automatic Data is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Prudential Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prudential Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Automatic Data and Prudential Financial

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

The idea behind Automatic Data Processing and Prudential Financial 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.