Correlation Between Public Storage and Automatic Data

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

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

Diversification Opportunities for Public Storage and Automatic Data

0.48

Correlation Coefficient

Public Storage  Automatic Data

Very weak diversification

The 3 months correlation between Public and Automatic is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Public Storage 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 Public Storage 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 Public Storage 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 Public Storage i.e., Public Storage and Automatic Data go up and down completely randomly.

Pair Corralation between Public Storage and Automatic Data

Assuming the 90 days trading horizon Public Storage is expected to under-perform the Automatic Data. But the stock apears to be less risky and, when comparing its historical volatility, Public Storage is 1.47 times less risky than Automatic Data. The stock trades about -0.16 of its potential returns per unit of risk. The Automatic Data Processing is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  7,476  in Automatic Data Processing on December 26, 2024 and sell it today you would lose (448.00) from holding Automatic Data Processing or give up 5.99% of portfolio value over 90 days.

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

Public Storage  vs.  Automatic Data Processing

Public Storage

Risk-Adjusted Performance

Very Weak

Over the last 90 days Public Storage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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.

Pair Trading with Public Storage and Automatic Data

The main advantage of trading using opposite Public Storage and Automatic Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Public Storage 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 Public Storage 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.