Correlation Between Paychex and Experian Plc

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

By analyzing existing cross correlation between Paychex and Experian plc, you can compare the effects of market volatilities on Paychex and Experian 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 Paychex with a short position of Experian Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Paychex and Experian Plc.

Diversification Opportunities for Paychex and Experian Plc

-0.42

Correlation Coefficient

Paychex  Experian Plc

Very good diversification

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

Pair Corralation between Paychex and Experian Plc

Assuming the 90 days horizon Paychex is expected to generate 1.24 times less return on investment than Experian Plc. But when comparing it to its historical volatility, Paychex is 1.17 times less risky than Experian Plc. It trades about 0.05 of its potential returns per unit of risk. Experian plc is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,059  in Experian plc on September 18, 2024 and sell it today you would earn a total of  1,281  from holding Experian plc or generate 41.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Paychex  vs.  Experian plc

Paychex

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Paychex are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Paychex may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Experian plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Experian plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Experian Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Paychex and Experian Plc

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

The idea behind Paychex and Experian 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.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.