Correlation Between Trainline Plc and Automatic Data

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

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

Diversification Opportunities for Trainline Plc and Automatic Data

0.64

Correlation Coefficient

Trainline Plc  Automatic Data

Poor diversification

The 3 months correlation between Trainline and Automatic is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Trainline Plc 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 Trainline Plc 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 Trainline Plc 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 Trainline Plc i.e., Trainline Plc and Automatic Data go up and down completely randomly.

Pair Corralation between Trainline Plc and Automatic Data

Assuming the 90 days trading horizon Trainline Plc is expected to under-perform the Automatic Data. In addition to that, Trainline Plc is 1.78 times more volatile than Automatic Data Processing. It trades about -0.24 of its total potential returns per unit of risk. Automatic Data Processing is currently generating about -0.28 per unit of volatility. If you would invest  30,246  in Automatic Data Processing on October 12, 2024 and sell it today you would lose (1,400) from holding Automatic Data Processing or give up 4.63% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Trainline Plc  vs.  Automatic Data Processing

Trainline Plc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Trainline Plc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Trainline Plc exhibited solid returns over the last few months and may actually be approaching a breakup point.

Automatic Data Processing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Automatic Data Processing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Automatic Data is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Trainline Plc and Automatic Data

The main advantage of trading using opposite Trainline Plc and Automatic Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Trainline Plc 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 Trainline Plc 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..