Correlation Between Automatic Data and Procter Gamble

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

Diversification Opportunities for Automatic Data and Procter Gamble

0.38

Correlation Coefficient

Automatic Data  Procter Gamble

Weak diversification

The 3 months correlation between Automatic and Procter is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and The Procter Gamble in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Procter Gamble 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 Procter Gamble. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Procter Gamble has no effect on the direction of Automatic Data i.e., Automatic Data and Procter Gamble go up and down completely randomly.

Pair Corralation between Automatic Data and Procter Gamble

Assuming the 90 days trading horizon Automatic Data Processing is expected to generate 1.42 times more return on investment than Procter Gamble. However, Automatic Data is 1.42 times more volatile than The Procter Gamble. It trades about 0.11 of its potential returns per unit of risk. The Procter Gamble is currently generating about 0.06 per unit of risk. If you would invest  4,589  in Automatic Data Processing on December 4, 2024 and sell it today you would earn a total of  3,099  from holding Automatic Data Processing or generate 67.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	55.8%
Values	Daily Returns

Automatic Data Processing  vs.  The Procter Gamble

Automatic Data Processing

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Automatic Data is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Procter Gamble

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Procter Gamble has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Procter Gamble is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Automatic Data and Procter Gamble

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

The idea behind Automatic Data Processing and The Procter Gamble 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.