Correlation Between Target and Automatic Data

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

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

Diversification Opportunities for Target and Automatic Data

0.61

Correlation Coefficient

Target  Automatic Data

Poor diversification

The 3 months correlation between Target and Automatic is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Target 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 Target 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 Target 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 Target i.e., Target and Automatic Data go up and down completely randomly.

Pair Corralation between Target and Automatic Data

Assuming the 90 days trading horizon Target is expected to under-perform the Automatic Data. In addition to that, Target is 1.47 times more volatile than Automatic Data Processing. It trades about -0.23 of its total potential returns per unit of risk. Automatic Data Processing is currently generating about -0.07 per unit of volatility. If you would invest  7,476  in Automatic Data Processing on December 25, 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	Significant
Accuracy	98.31%
Values	Daily Returns

Target  vs.  Automatic Data Processing

Target

Risk-Adjusted Performance

Very Weak

Over the last 90 days Target has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing 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 Target and Automatic Data

The main advantage of trading using opposite Target and Automatic Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target 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 Target 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 Transaction History module to view history of all your transactions and understand their impact on performance.