Correlation Between STERIS Plc and Automatic Data

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

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

Diversification Opportunities for STERIS Plc and Automatic Data

-0.44

Correlation Coefficient

STERIS Plc  Automatic Data

Very good diversification

The 3 months correlation between STERIS and Automatic is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding STERIS plc 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 STERIS Plc 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 STERIS plc 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 STERIS Plc i.e., STERIS Plc and Automatic Data go up and down completely randomly.

Pair Corralation between STERIS Plc and Automatic Data

Assuming the 90 days trading horizon STERIS Plc is expected to generate 3.62 times less return on investment than Automatic Data. But when comparing it to its historical volatility, STERIS plc is 71.26 times less risky than Automatic Data. It trades about 0.12 of its potential returns per unit of risk. Automatic Data Processing is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  7,007  in Automatic Data Processing on May 3, 2025 and sell it today you would lose (14.00) from holding Automatic Data Processing or give up 0.2% of portfolio value over 90 days.

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

STERIS plc  vs.  Automatic Data Processing

STERIS plc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in STERIS plc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, STERIS Plc is not utilizing all of its potentials. The current stock price disturbance, 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. Despite somewhat strong basic indicators, Automatic Data is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with STERIS Plc and Automatic Data

The main advantage of trading using opposite STERIS Plc and Automatic Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STERIS Plc 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 STERIS plc 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.