Correlation Between Ke Holdings and Automatic Data

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

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

Diversification Opportunities for Ke Holdings and Automatic Data

0.45

Correlation Coefficient

Ke Holdings  Automatic Data

Very weak diversification

The 3 months correlation between BEKE and Automatic is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Ke Holdings 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 Ke Holdings 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 Ke Holdings 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 Ke Holdings i.e., Ke Holdings and Automatic Data go up and down completely randomly.

Pair Corralation between Ke Holdings and Automatic Data

Given the investment horizon of 90 days Ke Holdings is expected to generate 3.48 times more return on investment than Automatic Data. However, Ke Holdings is 3.48 times more volatile than Automatic Data Processing. It trades about 0.07 of its potential returns per unit of risk. Automatic Data Processing is currently generating about 0.08 per unit of risk. If you would invest  1,843  in Ke Holdings on December 29, 2024 and sell it today you would earn a total of  216.00  from holding Ke Holdings or generate 11.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Ke Holdings  vs.  Automatic Data Processing

Ke Holdings

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ke Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent forward-looking signals, Ke Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Automatic Data Processing

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental indicators, Automatic Data is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Ke Holdings and Automatic Data

The main advantage of trading using opposite Ke Holdings and Automatic Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ke Holdings 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 Ke Holdings 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.