Correlation Between Barrett Business and Automatic Data

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

By analyzing existing cross correlation between Barrett Business Services and Automatic Data Processing, you can compare the effects of market volatilities on Barrett Business and Automatic Data 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 Barrett Business with a short position of Automatic Data. Check out your portfolio center. Please also check ongoing floating volatility patterns of Barrett Business and Automatic Data.

Diversification Opportunities for Barrett Business and Automatic Data

0.06

Correlation Coefficient

Barrett Business  Automatic Data

Significant diversification

The 3 months correlation between Barrett and Automatic is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Barrett Business Services and Automatic Data Processing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automatic Data Processing and Barrett Business 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 Barrett Business Services are associated (or correlated) with Automatic Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automatic Data Processing has no effect on the direction of Barrett Business i.e., Barrett Business and Automatic Data go up and down completely randomly.

Pair Corralation between Barrett Business and Automatic Data

Given the investment horizon of 90 days Barrett Business Services is expected to under-perform the Automatic Data. But the stock apears to be less risky and, when comparing its historical volatility, Barrett Business Services is 1.16 times less risky than Automatic Data. The stock trades about -0.05 of its potential returns per unit of risk. The Automatic Data Processing is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  28,866  in Automatic Data Processing on January 12, 2025 and sell it today you would earn a total of  1,088  from holding Automatic Data Processing or generate 3.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Barrett Business Services  vs.  Automatic Data Processing

Barrett Business Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Barrett Business Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Barrett Business is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Automatic Data Processing

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental indicators, Automatic Data is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Barrett Business and Automatic Data

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

The idea behind Barrett Business Services and Automatic Data Processing 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.

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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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.