Correlation Between Caledonia Investments and Automatic Data

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

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

Diversification Opportunities for Caledonia Investments and Automatic Data

-0.12

Correlation Coefficient

Caledonia Investments  Automatic Data

Good diversification

The 3 months correlation between Caledonia and Automatic is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Caledonia Investments 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 Caledonia Investments 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 Caledonia Investments 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 Caledonia Investments i.e., Caledonia Investments and Automatic Data go up and down completely randomly.

Pair Corralation between Caledonia Investments and Automatic Data

Assuming the 90 days trading horizon Caledonia Investments is expected to generate 0.92 times more return on investment than Automatic Data. However, Caledonia Investments is 1.08 times less risky than Automatic Data. It trades about 0.17 of its potential returns per unit of risk. Automatic Data Processing is currently generating about 0.06 per unit of risk. If you would invest  332,481  in Caledonia Investments on October 25, 2024 and sell it today you would earn a total of  34,019  from holding Caledonia Investments or generate 10.23% return on investment over 90 days.

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

Caledonia Investments  vs.  Automatic Data Processing

Caledonia Investments

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Caledonia Investments are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Caledonia Investments may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Automatic Data Processing

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Automatic Data is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Caledonia Investments and Automatic Data

The main advantage of trading using opposite Caledonia Investments and Automatic Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caledonia Investments 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 Caledonia Investments 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.