Correlation Between Visa and Automatic Data
Can any of the company-specific risk be diversified away by investing in both Visa 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 Visa and Automatic Data into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Visa Class A and Automatic Data Processing, you can compare the effects of market volatilities on Visa 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 Visa with a short position of Automatic Data. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Automatic Data.
Diversification Opportunities for Visa and Automatic Data
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Visa and Automatic is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A 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 Visa 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 Visa Class A 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 Visa i.e., Visa and Automatic Data go up and down completely randomly.
Pair Corralation between Visa and Automatic Data
Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.78 times more return on investment than Automatic Data. However, Visa Class A is 1.28 times less risky than Automatic Data. It trades about 0.08 of its potential returns per unit of risk. Automatic Data Processing is currently generating about 0.05 per unit of risk. If you would invest 23,070 in Visa Class A on January 26, 2024 and sell it today you would earn a total of 4,432 from holding Visa Class A or generate 19.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Visa Class A vs. Automatic Data Processing
Performance |
| Timeline |
| Visa Class A |
| Automatic Data Processing |
Visa and Automatic Data Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Visa and Automatic Data
The main advantage of trading using opposite Visa and Automatic Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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 Visa Class A 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.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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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