Correlation Between Automatic Data and Rentokil Initial

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

Diversification Opportunities for Automatic Data and Rentokil Initial

-0.37

Correlation Coefficient

Automatic Data  Rentokil Initial

Very good diversification

The 3 months correlation between Automatic and Rentokil is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Rentokil Initial PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rentokil Initial 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 Rentokil Initial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rentokil Initial PLC has no effect on the direction of Automatic Data i.e., Automatic Data and Rentokil Initial go up and down completely randomly.

Pair Corralation between Automatic Data and Rentokil Initial

Considering the 90-day investment horizon Automatic Data Processing is expected to generate 0.32 times more return on investment than Rentokil Initial. However, Automatic Data Processing is 3.15 times less risky than Rentokil Initial. It trades about 0.18 of its potential returns per unit of risk. Rentokil Initial PLC is currently generating about -0.09 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	Insignificant
Accuracy	98.44%
Values	Daily Returns

Automatic Data Processing  vs.  Rentokil Initial PLC

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.

Rentokil Initial PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rentokil Initial PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Automatic Data and Rentokil Initial

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

The idea behind Automatic Data Processing and Rentokil Initial 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.

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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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.