Correlation Between Paychex and Broadridge Financial

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

By analyzing existing cross correlation between Paychex and Broadridge Financial Solutions, you can compare the effects of market volatilities on Paychex and Broadridge Financial 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 Paychex with a short position of Broadridge Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Paychex and Broadridge Financial.

Diversification Opportunities for Paychex and Broadridge Financial

0.8

Correlation Coefficient

Paychex  Broadridge Financial

Very poor diversification

The 3 months correlation between Paychex and Broadridge is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Paychex and Broadridge Financial Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadridge Financial and Paychex 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 Paychex are associated (or correlated) with Broadridge Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Broadridge Financial has no effect on the direction of Paychex i.e., Paychex and Broadridge Financial go up and down completely randomly.

Pair Corralation between Paychex and Broadridge Financial

Assuming the 90 days horizon Paychex is expected to generate 1.21 times more return on investment than Broadridge Financial. However, Paychex is 1.21 times more volatile than Broadridge Financial Solutions. It trades about 0.05 of its potential returns per unit of risk. Broadridge Financial Solutions is currently generating about 0.03 per unit of risk. If you would invest  13,399  in Paychex on December 28, 2024 and sell it today you would earn a total of  553.00  from holding Paychex or generate 4.13% return on investment over 90 days.

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

Paychex  vs.  Broadridge Financial Solutions

Paychex

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Paychex are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Paychex is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Broadridge Financial

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Broadridge Financial Solutions are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Broadridge Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Paychex and Broadridge Financial

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

The idea behind Paychex and Broadridge Financial Solutions 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.