Correlation Between Automatic Data and Verizon Communications
Can any of the company-specific risk be diversified away by investing in both Automatic Data and Verizon Communications 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 Verizon Communications 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 Verizon Communications, you can compare the effects of market volatilities on Automatic Data and Verizon Communications 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 Verizon Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Automatic Data and Verizon Communications.
Diversification Opportunities for Automatic Data and Verizon Communications
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Automatic and Verizon is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications 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 Verizon Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Automatic Data i.e., Automatic Data and Verizon Communications go up and down completely randomly.
Pair Corralation between Automatic Data and Verizon Communications
Assuming the 90 days trading horizon Automatic Data Processing is expected to generate 0.87 times more return on investment than Verizon Communications. However, Automatic Data Processing is 1.15 times less risky than Verizon Communications. It trades about 0.03 of its potential returns per unit of risk. Verizon Communications is currently generating about -0.14 per unit of risk. If you would invest 7,300 in Automatic Data Processing on October 26, 2024 and sell it today you would earn a total of 100.00 from holding Automatic Data Processing or generate 1.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.0% |
| Values | Daily Returns |
Automatic Data Processing vs. Verizon Communications
Performance |
| Timeline |
| Automatic Data Processing |
| Verizon Communications |
Automatic Data and Verizon Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Automatic Data and Verizon Communications
The main advantage of trading using opposite Automatic Data and Verizon Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Automatic Data position performs unexpectedly, Verizon Communications 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 Verizon Communications will offset losses from the drop in Verizon Communications' long position.| Automatic Data vs. British American Tobacco | Automatic Data vs. Medical Properties Trust, | Automatic Data vs. Monster Beverage | Automatic Data vs. Liberty Broadband |
| Verizon Communications vs. Capital One Financial | Verizon Communications vs. Automatic Data Processing | Verizon Communications vs. Bread Financial Holdings | Verizon Communications vs. SVB Financial Group |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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