Correlation Between Pebblebrook Hotel and Automatic Data

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

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

Diversification Opportunities for Pebblebrook Hotel and Automatic Data

0.52

Correlation Coefficient

Pebblebrook Hotel  Automatic Data

Very weak diversification

The 3 months correlation between Pebblebrook and Automatic is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Pebblebrook Hotel Trust 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 Pebblebrook Hotel 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 Pebblebrook Hotel Trust 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 Pebblebrook Hotel i.e., Pebblebrook Hotel and Automatic Data go up and down completely randomly.

Pair Corralation between Pebblebrook Hotel and Automatic Data

Assuming the 90 days trading horizon Pebblebrook Hotel is expected to generate 4.57 times less return on investment than Automatic Data. In addition to that, Pebblebrook Hotel is 1.82 times more volatile than Automatic Data Processing. It trades about 0.02 of its total potential returns per unit of risk. Automatic Data Processing is currently generating about 0.14 per unit of volatility. If you would invest  22,931  in Automatic Data Processing on September 23, 2024 and sell it today you would earn a total of  5,284  from holding Automatic Data Processing or generate 23.04% return on investment over 90 days.

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

Pebblebrook Hotel Trust  vs.  Automatic Data Processing

Pebblebrook Hotel Trust

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pebblebrook Hotel Trust are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Pebblebrook Hotel is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Automatic Data Processing

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Automatic Data reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pebblebrook Hotel and Automatic Data

The main advantage of trading using opposite Pebblebrook Hotel and Automatic Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pebblebrook Hotel 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 Pebblebrook Hotel Trust 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.