Correlation Between EPAM Systems and Automatic Data

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

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

Diversification Opportunities for EPAM Systems and Automatic Data

0.53

Correlation Coefficient

EPAM Systems  Automatic Data

Very weak diversification

The 3 months correlation between EPAM and Automatic is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding EPAM Systems 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 EPAM Systems 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 EPAM Systems 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 EPAM Systems i.e., EPAM Systems and Automatic Data go up and down completely randomly.

Pair Corralation between EPAM Systems and Automatic Data

Given the investment horizon of 90 days EPAM Systems is expected to under-perform the Automatic Data. In addition to that, EPAM Systems is 2.37 times more volatile than Automatic Data Processing. It trades about -0.02 of its total potential returns per unit of risk. Automatic Data Processing is currently generating about 0.0 per unit of volatility. If you would invest  30,245  in Automatic Data Processing on May 3, 2025 and sell it today you would lose (201.00) from holding Automatic Data Processing or give up 0.66% of portfolio value over 90 days.

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

EPAM Systems  vs.  Automatic Data Processing

EPAM Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days EPAM Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, EPAM Systems is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Automatic Data Processing

Risk-Adjusted Performance

Very Weak

Over the last 90 days Automatic Data Processing has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, Automatic Data is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with EPAM Systems and Automatic Data

The main advantage of trading using opposite EPAM Systems and Automatic Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EPAM Systems 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 EPAM Systems 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.