Correlation Between Automatic Data and American Airlines
Can any of the company-specific risk be diversified away by investing in both Automatic Data and American Airlines 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 American Airlines 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 American Airlines Group, you can compare the effects of market volatilities on Automatic Data and American Airlines 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 American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Automatic Data and American Airlines.
Diversification Opportunities for Automatic Data and American Airlines
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Automatic and American is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines 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 American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of Automatic Data i.e., Automatic Data and American Airlines go up and down completely randomly.
Pair Corralation between Automatic Data and American Airlines
Assuming the 90 days trading horizon Automatic Data Processing is expected to generate 0.7 times more return on investment than American Airlines. However, Automatic Data Processing is 1.43 times less risky than American Airlines. It trades about 0.13 of its potential returns per unit of risk. American Airlines Group is currently generating about 0.03 per unit of risk. If you would invest 4,305 in Automatic Data Processing on August 31, 2024 and sell it today you would earn a total of 3,019 from holding Automatic Data Processing or generate 70.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 69.6% |
| Values | Daily Returns |
Automatic Data Processing vs. American Airlines Group
Performance |
| Timeline |
| Automatic Data Processing |
| American Airlines |
Automatic Data and American Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Automatic Data and American Airlines
The main advantage of trading using opposite Automatic Data and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Automatic Data position performs unexpectedly, American Airlines 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 American Airlines will offset losses from the drop in American Airlines' long position.| Automatic Data vs. Fras le SA | Automatic Data vs. Western Digital | Automatic Data vs. Energisa SA | Automatic Data vs. Clave Indices De |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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