Correlation Between Automatic Data and Barclays PLC

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

Diversification Opportunities for Automatic Data and Barclays PLC

0.95

Correlation Coefficient

Automatic Data  Barclays PLC

Almost no diversification

The 3 months correlation between Automatic and Barclays is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Barclays PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barclays 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 Barclays PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barclays PLC has no effect on the direction of Automatic Data i.e., Automatic Data and Barclays PLC go up and down completely randomly.

Pair Corralation between Automatic Data and Barclays PLC

Assuming the 90 days trading horizon Automatic Data is expected to generate 1.03 times less return on investment than Barclays PLC. But when comparing it to its historical volatility, Automatic Data Processing is 1.41 times less risky than Barclays PLC. It trades about 0.18 of its potential returns per unit of risk. Barclays PLC is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  6,072  in Barclays PLC on September 30, 2024 and sell it today you would earn a total of  2,152  from holding Barclays PLC or generate 35.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.41%
Values	Daily Returns

Automatic Data Processing  vs.  Barclays PLC

Automatic Data Processing

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Automatic Data sustained solid returns over the last few months and may actually be approaching a breakup point.

Barclays PLC

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Barclays PLC are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Barclays PLC sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Automatic Data and Barclays PLC

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

The idea behind Automatic Data Processing and Barclays 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.