Correlation Between Automatic Data and Target

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

Diversification Opportunities for Automatic Data and Target

-0.26

Correlation Coefficient

Automatic Data  Target

Very good diversification

The 3 months correlation between Automatic and Target is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target 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 Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of Automatic Data i.e., Automatic Data and Target go up and down completely randomly.

Pair Corralation between Automatic Data and Target

Assuming the 90 days trading horizon Automatic Data Processing is expected to generate 0.75 times more return on investment than Target. However, Automatic Data Processing is 1.33 times less risky than Target. It trades about 0.07 of its potential returns per unit of risk. Target is currently generating about 0.02 per unit of risk. If you would invest  4,975  in Automatic Data Processing on October 11, 2024 and sell it today you would earn a total of  2,475  from holding Automatic Data Processing or generate 49.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	83.33%
Values	Daily Returns

Automatic Data Processing  vs.  Target

Automatic Data Processing

Risk-Adjusted Performance

12 of 100

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.

Target

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Target has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Target 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 Target

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

The idea behind Automatic Data Processing and Target 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.