Correlation Between Automatic Data and Exponent

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

Diversification Opportunities for Automatic Data and Exponent

-0.42

Correlation Coefficient

Automatic Data  Exponent

Very good diversification

The 3 months correlation between Automatic and Exponent is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Exponent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exponent 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 Exponent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exponent has no effect on the direction of Automatic Data i.e., Automatic Data and Exponent go up and down completely randomly.

Pair Corralation between Automatic Data and Exponent

Considering the 90-day investment horizon Automatic Data Processing is expected to generate 0.51 times more return on investment than Exponent. However, Automatic Data Processing is 1.97 times less risky than Exponent. It trades about 0.18 of its potential returns per unit of risk. Exponent is currently generating about -0.06 per unit of risk. If you would invest  27,452  in Automatic Data Processing on August 30, 2024 and sell it today you would earn a total of  3,240  from holding Automatic Data Processing or generate 11.8% return on investment over 90 days.

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

Automatic Data Processing  vs.  Exponent

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. Even with relatively inconsistent fundamental indicators, Automatic Data may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Exponent

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Exponent has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Automatic Data and Exponent

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

The idea behind Automatic Data Processing and Exponent 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.