Correlation Between Automatic Data and HK Electric
Can any of the company-specific risk be diversified away by investing in both Automatic Data and HK Electric 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 HK Electric 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 HK Electric Investments, you can compare the effects of market volatilities on Automatic Data and HK Electric 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 HK Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Automatic Data and HK Electric.
Diversification Opportunities for Automatic Data and HK Electric
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Automatic and HKT is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and HK Electric Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HK Electric Investments 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 HK Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HK Electric Investments has no effect on the direction of Automatic Data i.e., Automatic Data and HK Electric go up and down completely randomly.
Pair Corralation between Automatic Data and HK Electric
Assuming the 90 days horizon Automatic Data is expected to generate 2.5 times less return on investment than HK Electric. But when comparing it to its historical volatility, Automatic Data Processing is 2.69 times less risky than HK Electric. It trades about 0.13 of its potential returns per unit of risk. HK Electric Investments is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 28.00 in HK Electric Investments on August 26, 2024 and sell it today you would earn a total of 35.00 from holding HK Electric Investments or generate 125.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Automatic Data Processing vs. HK Electric Investments
Performance |
| Timeline |
| Automatic Data Processing |
| HK Electric Investments |
Automatic Data and HK Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Automatic Data and HK Electric
The main advantage of trading using opposite Automatic Data and HK Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Automatic Data position performs unexpectedly, HK Electric 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 HK Electric will offset losses from the drop in HK Electric's long position.The idea behind Automatic Data Processing and HK Electric Investments 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.| HK Electric vs. GOODYEAR T RUBBER | HK Electric vs. Automatic Data Processing | HK Electric vs. APPLIED MATERIALS | HK Electric vs. Eagle Materials |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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