Correlation Between Fidelity National and Automatic Data

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

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

Diversification Opportunities for Fidelity National and Automatic Data

0.72

Correlation Coefficient

Fidelity National  Automatic Data

Poor diversification

The 3 months correlation between Fidelity and Automatic is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity National Information 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 Fidelity National 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 Fidelity National Information 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 Fidelity National i.e., Fidelity National and Automatic Data go up and down completely randomly.

Pair Corralation between Fidelity National and Automatic Data

Assuming the 90 days trading horizon Fidelity National Information is expected to generate 1.11 times more return on investment than Automatic Data. However, Fidelity National is 1.11 times more volatile than Automatic Data Processing. It trades about 0.14 of its potential returns per unit of risk. Automatic Data Processing is currently generating about 0.09 per unit of risk. If you would invest  3,041  in Fidelity National Information on September 27, 2024 and sell it today you would earn a total of  133.00  from holding Fidelity National Information or generate 4.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	86.36%
Values	Daily Returns

Fidelity National Information  vs.  Automatic Data Processing

Fidelity National

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity National Information are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fidelity National may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Automatic Data Processing

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 17 (%) 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.

Pair Trading with Fidelity National and Automatic Data

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