Correlation Between Visa and EDP Renovaveis

Can any of the company-specific risk be diversified away by investing in both Visa and EDP Renovaveis 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 EDP Renovaveis 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 EDP Renovaveis, you can compare the effects of market volatilities on Visa and EDP Renovaveis 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 EDP Renovaveis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and EDP Renovaveis.

Diversification Opportunities for Visa and EDP Renovaveis

-0.37

Correlation Coefficient

Visa  EDP Renovaveis

Very good diversification

The 3 months correlation between Visa and EDP is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and EDP Renovaveis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EDP Renovaveis 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 EDP Renovaveis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EDP Renovaveis has no effect on the direction of Visa i.e., Visa and EDP Renovaveis go up and down completely randomly.

Pair Corralation between Visa and EDP Renovaveis

Taking into account the 90-day investment horizon Visa Class A is expected to under-perform the EDP Renovaveis. But the stock apears to be less risky and, when comparing its historical volatility, Visa Class A is 2.77 times less risky than EDP Renovaveis. The stock trades about -0.15 of its potential returns per unit of risk. The EDP Renovaveis is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,257  in EDP Renovaveis on January 25, 2024 and sell it today you would earn a total of  8.00  from holding EDP Renovaveis or generate 0.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Visa Class A  vs.  EDP Renovaveis

Visa Class A

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Visa is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

EDP Renovaveis

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EDP Renovaveis has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in May 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Visa and EDP Renovaveis

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

The idea behind Visa Class A and EDP Renovaveis 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.