Correlation Between Automatic Data and Tower Semiconductor
Can any of the company-specific risk be diversified away by investing in both Automatic Data and Tower Semiconductor 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 Tower Semiconductor 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 Tower Semiconductor, you can compare the effects of market volatilities on Automatic Data and Tower Semiconductor 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 Tower Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Automatic Data and Tower Semiconductor.
Diversification Opportunities for Automatic Data and Tower Semiconductor
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Automatic and Tower is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Tower Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tower Semiconductor 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 Tower Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tower Semiconductor has no effect on the direction of Automatic Data i.e., Automatic Data and Tower Semiconductor go up and down completely randomly.
Pair Corralation between Automatic Data and Tower Semiconductor
Assuming the 90 days horizon Automatic Data is expected to generate 2.46 times less return on investment than Tower Semiconductor. But when comparing it to its historical volatility, Automatic Data Processing is 2.48 times less risky than Tower Semiconductor. It trades about 0.11 of its potential returns per unit of risk. Tower Semiconductor is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 2,630 in Tower Semiconductor on August 28, 2024 and sell it today you would earn a total of 2,019 from holding Tower Semiconductor or generate 76.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Automatic Data Processing vs. Tower Semiconductor
Performance |
| Timeline |
| Automatic Data Processing |
| Tower Semiconductor |
Automatic Data and Tower Semiconductor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Automatic Data and Tower Semiconductor
The main advantage of trading using opposite Automatic Data and Tower Semiconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Automatic Data position performs unexpectedly, Tower Semiconductor 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 Tower Semiconductor will offset losses from the drop in Tower Semiconductor's long position.| Automatic Data vs. New Residential Investment | Automatic Data vs. Vishay Intertechnology | Automatic Data vs. Casio Computer CoLtd | Automatic Data vs. PennantPark Investment |
| Tower Semiconductor vs. Gamma Communications plc | Tower Semiconductor vs. Iridium Communications | Tower Semiconductor vs. MTI WIRELESS EDGE | Tower Semiconductor vs. SK TELECOM TDADR |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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