Correlation Between RTL Group and Automatic Data

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

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

Diversification Opportunities for RTL Group and Automatic Data

-0.18

Correlation Coefficient

RTL Group  Automatic Data

Good diversification

The 3 months correlation between RTL and Automatic is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding RTL Group SA 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 RTL Group 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 RTL Group SA 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 RTL Group i.e., RTL Group and Automatic Data go up and down completely randomly.

Pair Corralation between RTL Group and Automatic Data

Assuming the 90 days trading horizon RTL Group SA is expected to generate 1.36 times more return on investment than Automatic Data. However, RTL Group is 1.36 times more volatile than Automatic Data Processing. It trades about 0.28 of its potential returns per unit of risk. Automatic Data Processing is currently generating about -0.04 per unit of risk. If you would invest  2,630  in RTL Group SA on December 21, 2024 and sell it today you would earn a total of  935.00  from holding RTL Group SA or generate 35.55% return on investment over 90 days.

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

RTL Group SA  vs.  Automatic Data Processing

RTL Group SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in RTL Group SA are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, RTL Group reported solid returns over the last few months and may actually be approaching a breakup point.

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 nearly stable basic indicators, Automatic Data is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with RTL Group and Automatic Data

The main advantage of trading using opposite RTL Group and Automatic Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RTL Group 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 RTL Group SA 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.