Correlation Between Visa and Electronic Systems

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

Diversification Opportunities for Visa and Electronic Systems

0.21

Correlation Coefficient

Visa  Electronic Systems

Modest diversification

The 3 months correlation between Visa and Electronic is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Electronic Systems Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronic Systems 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 Electronic Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electronic Systems has no effect on the direction of Visa i.e., Visa and Electronic Systems go up and down completely randomly.

Pair Corralation between Visa and Electronic Systems

Taking into account the 90-day investment horizon Visa is expected to generate 1.55 times less return on investment than Electronic Systems. But when comparing it to its historical volatility, Visa Class A is 4.5 times less risky than Electronic Systems. It trades about 0.06 of its potential returns per unit of risk. Electronic Systems Technology is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  28.00  in Electronic Systems Technology on March 2, 2024 and sell it today you would lose (1.64) from holding Electronic Systems Technology or give up 5.86% of portfolio value over 90 days.

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

Visa Class A  vs.  Electronic Systems Technology

Visa Class A

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Visa Class A has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Electronic Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Electronic Systems Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Electronic Systems is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Visa and Electronic Systems

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

The idea behind Visa Class A and Electronic Systems Technology 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.