AUTOMATIC DATA PROCESSING INC

130.0 -2.42 (-1.86%) Sell

Want to invest in ADP? Avoid as it significantly underperformed

13 min read

AUTOMATIC DATA PROCESSING INC significantly underperformed on Tuesday. It returned -1.86% to close at 130.0. It is currently trading -14% below it's 52 week high of 151.77.

[Themes containing ADP]

ADP showed a strong down trend over the last 3 months. During this period ADP returned -11.55% and saw a maximum drawdown of -14.34%. There were 2 short signals during this period that returned a cumulative of +2.1% to investors.

Trend

ADP has been underperforming the SP500 index in recent time, after having outperformed till 28 Nov, 2018. Over the last 2 years 11 months and 14 days, ADP outperformed the SP500 index on 54% days.

During the last three months ADP was mostly loss making and delivered on average -0.18% per day. It's best return during this period (of +4.97%) was on Wednesday, 31 Oct, 2018. While it's worst loss in the same period (of -5.57%) was on Wednesday, 10 Oct, 2018. There was initially a bullish trend during this period which started on 26 Sep, 2018 and went on till 2 Oct, 2018. The bullish trend returned +1.91% to investors. This was followed by a bearish trend that started on 12 Dec, 2018 and ended on 18 Dec, 2018. This bearish trend lost -7.33% of investor capital.

On monthly basis, ADP delivered profits in more months over the last year, than losses. ADP delivered profits less regularly than SP500 index. ADP was also a more risky investment than SP500 index as it's worst month in the last year, Dec 2018, returned -11.82% compared to -7.75% returned by SP500 index in Dec 2018. ADP and SP500 index, both had periods of 6 consecutive profitable months.

If I finance a bank and I know if the bank will get in trouble, I will be hit and I will lose money, I will put a price on that.
-- Jeroen Dijsselbloem

ADP is becoming more volatile overall. In comparison, the SP500 index is seeing a rise in volatility. During the last three months, there was a significant surge in ADP's volatility from 19 Sep, 2018 to 20 Nov, 2018. While there was a significant surge in the SP500 index's volatility from 19 Sep, 2018 to 29 Oct, 2018.

Advanced/professional short-term investors should note that ADP has significant positive skewness in it's return distribution. This indicates that investors can expect ADP to recover from drawdowns quickly. Which makes ADP a good candidate for investing on short-term bullish trends or even counter-trends hoping for a pull-back.

Investors trading in ADP derivatives at this moment can consider 'Covered Call' options strategy to receive better risk-adjusted returns.

SP500 index has more chance of extreme outcomes than ADP. Therefore, SP500 must receive a lower allocation than ADP in your portfolio. ADP usually has shorter drawdown period than the SP500 index.

On a general note (since you are interested in ADP), three instruments that are extremely volatile are OPNT, GNK and ICPT. They must all be evaluated prudently and investors are better off avoiding them at the moment.

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