Correlation Between Automatic Data and Marstons PLC

Can any of the company-specific risk be diversified away by investing in both Automatic Data and Marstons PLC 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 Marstons PLC 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 Marstons PLC, you can compare the effects of market volatilities on Automatic Data and Marstons PLC 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 Marstons PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Automatic Data and Marstons PLC.

Diversification Opportunities for Automatic Data and Marstons PLC

-0.35

Correlation Coefficient

Automatic Data  Marstons PLC

Very good diversification

The 3 months correlation between Automatic and Marstons is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Marstons PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marstons PLC 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 Marstons PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marstons PLC has no effect on the direction of Automatic Data i.e., Automatic Data and Marstons PLC go up and down completely randomly.

Pair Corralation between Automatic Data and Marstons PLC

Assuming the 90 days trading horizon Automatic Data Processing is expected to under-perform the Marstons PLC. But the stock apears to be less risky and, when comparing its historical volatility, Automatic Data Processing is 2.3 times less risky than Marstons PLC. The stock trades about -0.17 of its potential returns per unit of risk. The Marstons PLC is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  3,925  in Marstons PLC on September 23, 2024 and sell it today you would earn a total of  625.00  from holding Marstons PLC or generate 15.92% return on investment over 90 days.

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

Automatic Data Processing  vs.  Marstons PLC

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.

Marstons PLC

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Marstons PLC are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Marstons PLC unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Automatic Data and Marstons PLC

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

The idea behind Automatic Data Processing and Marstons PLC 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.

Check out your portfolio center.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.