Correlation Between Automatic Data and Tesla

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

Diversification Opportunities for Automatic Data and Tesla

0.79

Correlation Coefficient

Automatic Data  Tesla

Poor diversification

The 3 months correlation between Automatic and Tesla is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla 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 Tesla. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tesla Inc has no effect on the direction of Automatic Data i.e., Automatic Data and Tesla go up and down completely randomly.

Pair Corralation between Automatic Data and Tesla

Assuming the 90 days trading horizon Automatic Data is expected to generate 2.91 times less return on investment than Tesla. But when comparing it to its historical volatility, Automatic Data Processing is 3.4 times less risky than Tesla. It trades about 0.24 of its potential returns per unit of risk. Tesla Inc is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  4,275  in Tesla Inc on October 4, 2024 and sell it today you would earn a total of  2,966  from holding Tesla Inc or generate 69.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.61%
Values	Daily Returns

Automatic Data Processing  vs.  Tesla Inc

Automatic Data Processing

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 19 (%) 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.

Tesla Inc

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Tesla sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Automatic Data and Tesla

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

The idea behind Automatic Data Processing and Tesla 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.