Correlation Between BASE and Automatic Data

Can any of the company-specific risk be diversified away by investing in both BASE and Automatic Data 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 BASE and Automatic Data into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BASE Inc and Automatic Data Processing, you can compare the effects of market volatilities on BASE and Automatic Data 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 BASE with a short position of Automatic Data. Check out your portfolio center. Please also check ongoing floating volatility patterns of BASE and Automatic Data.

Diversification Opportunities for BASE and Automatic Data

-0.13

Correlation Coefficient

BASE  Automatic Data

Good diversification

The 3 months correlation between BASE and Automatic is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding BASE Inc and Automatic Data Processing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automatic Data Processing and BASE 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 BASE Inc are associated (or correlated) with Automatic Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automatic Data Processing has no effect on the direction of BASE i.e., BASE and Automatic Data go up and down completely randomly.

Pair Corralation between BASE and Automatic Data

Assuming the 90 days horizon BASE is expected to generate 1.05 times less return on investment than Automatic Data. In addition to that, BASE is 4.24 times more volatile than Automatic Data Processing. It trades about 0.05 of its total potential returns per unit of risk. Automatic Data Processing is currently generating about 0.21 per unit of volatility. If you would invest  23,328  in Automatic Data Processing on September 27, 2024 and sell it today you would earn a total of  6,395  from holding Automatic Data Processing or generate 27.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.21%
Values	Daily Returns

BASE Inc  vs.  Automatic Data Processing

BASE Inc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BASE Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, BASE reported solid returns over the last few months and may actually be approaching a breakup point.

Automatic Data Processing

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile fundamental indicators, Automatic Data may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BASE and Automatic Data

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

The idea behind BASE Inc and Automatic Data Processing 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.