Correlation Between Automatic Data and Visa

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

Diversification Opportunities for Automatic Data and Visa

0.36

Correlation Coefficient

Automatic Data  Visa

Weak diversification

The 3 months correlation between Automatic and Visa is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Visa Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Visa 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 Visa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Visa Inc has no effect on the direction of Automatic Data i.e., Automatic Data and Visa go up and down completely randomly.

Pair Corralation between Automatic Data and Visa

Assuming the 90 days trading horizon Automatic Data Processing is expected to under-perform the Visa. But the stock apears to be less risky and, when comparing its historical volatility, Automatic Data Processing is 1.12 times less risky than Visa. The stock trades about -0.07 of its potential returns per unit of risk. The Visa Inc is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  9,986  in Visa Inc on December 25, 2024 and sell it today you would lose (138.00) from holding Visa Inc or give up 1.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Automatic Data Processing  vs.  Visa Inc

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.

Visa Inc

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Automatic Data and Visa

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

The idea behind Automatic Data Processing and Visa 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.