Correlation Between Automatic Data and Walmart

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

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

Diversification Opportunities for Automatic Data and Walmart

0.08

Correlation Coefficient

Automatic Data  Walmart

Significant diversification

The 3 months correlation between Automatic and Walmart is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart and Automatic Data 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 Automatic Data Processing are associated (or correlated) with Walmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walmart has no effect on the direction of Automatic Data i.e., Automatic Data and Walmart go up and down completely randomly.

Pair Corralation between Automatic Data and Walmart

Assuming the 90 days trading horizon Automatic Data Processing is expected to generate 22.99 times more return on investment than Walmart. However, Automatic Data is 22.99 times more volatile than Walmart. It trades about 0.1 of its potential returns per unit of risk. Walmart is currently generating about 0.12 per unit of risk. If you would invest  27,531  in Automatic Data Processing on September 24, 2024 and sell it today you would earn a total of  1,856  from holding Automatic Data Processing or generate 6.74% return on investment over 90 days.

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

Automatic Data Processing  vs.  Walmart

Automatic Data Processing

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Automatic Data may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Walmart

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Walmart 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 Automatic Data and Walmart

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

The idea behind Automatic Data Processing and Walmart 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.