Correlation Between Datang International and Automatic Data

Can any of the company-specific risk be diversified away by investing in both Datang International and Automatic Data 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 Datang International and Automatic Data into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Datang International Power and Automatic Data Processing, you can compare the effects of market volatilities on Datang International and Automatic Data 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 Datang International with a short position of Automatic Data. Check out your portfolio center. Please also check ongoing floating volatility patterns of Datang International and Automatic Data.

Diversification Opportunities for Datang International and Automatic Data

0.25

Correlation Coefficient

Datang International  Automatic Data

Modest diversification

The 3 months correlation between Datang and Automatic is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Datang International Power and Automatic Data Processing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automatic Data Processing and Datang International 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 Datang International Power are associated (or correlated) with Automatic Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automatic Data Processing has no effect on the direction of Datang International i.e., Datang International and Automatic Data go up and down completely randomly.

Pair Corralation between Datang International and Automatic Data

Assuming the 90 days horizon Datang International is expected to generate 1.66 times less return on investment than Automatic Data. In addition to that, Datang International is 3.5 times more volatile than Automatic Data Processing. It trades about 0.04 of its total potential returns per unit of risk. Automatic Data Processing is currently generating about 0.25 per unit of volatility. If you would invest  24,697  in Automatic Data Processing on September 4, 2024 and sell it today you would earn a total of  4,413  from holding Automatic Data Processing or generate 17.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Datang International Power  vs.  Automatic Data Processing

Datang International

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Datang International Power are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Datang International may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Automatic Data Processing

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 19 (%) 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.

Pair Trading with Datang International and Automatic Data

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

The idea behind Datang International Power and Automatic Data Processing 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.