Correlation Between Automatic Data and Mitsubishi Estate

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

Diversification Opportunities for Automatic Data and Mitsubishi Estate

-0.84

Correlation Coefficient

Automatic Data  Mitsubishi Estate

Pay attention - limited upside

The 3 months correlation between Automatic and Mitsubishi is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Mitsubishi Estate Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsubishi Estate 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 Mitsubishi Estate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsubishi Estate has no effect on the direction of Automatic Data i.e., Automatic Data and Mitsubishi Estate go up and down completely randomly.

Pair Corralation between Automatic Data and Mitsubishi Estate

Assuming the 90 days horizon Automatic Data Processing is expected to generate 0.62 times more return on investment than Mitsubishi Estate. However, Automatic Data Processing is 1.62 times less risky than Mitsubishi Estate. It trades about 0.19 of its potential returns per unit of risk. Mitsubishi Estate Co is currently generating about -0.07 per unit of risk. If you would invest  25,009  in Automatic Data Processing on September 17, 2024 and sell it today you would earn a total of  3,481  from holding Automatic Data Processing or generate 13.92% return on investment over 90 days.

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

Automatic Data Processing  vs.  Mitsubishi Estate Co

Automatic Data Processing

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Automatic Data reported solid returns over the last few months and may actually be approaching a breakup point.

Mitsubishi Estate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mitsubishi Estate Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Automatic Data and Mitsubishi Estate

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

The idea behind Automatic Data Processing and Mitsubishi Estate Co 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.