Correlation Between Visa and Novus Acquisition

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

Diversification Opportunities for Visa and Novus Acquisition

0.11

Correlation Coefficient

Visa  Novus Acquisition

Average diversification

The 3 months correlation between Visa and Novus is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Novus Acquisition and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novus Acquisition 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 Novus Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novus Acquisition has no effect on the direction of Visa i.e., Visa and Novus Acquisition go up and down completely randomly.

Pair Corralation between Visa and Novus Acquisition

Taking into account the 90-day investment horizon Visa is expected to generate 7.36 times less return on investment than Novus Acquisition. But when comparing it to its historical volatility, Visa Class A is 13.74 times less risky than Novus Acquisition. It trades about 0.1 of its potential returns per unit of risk. Novus Acquisition and is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4.50  in Novus Acquisition and on February 3, 2024 and sell it today you would lose (2.47) from holding Novus Acquisition and or give up 54.89% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.75%
Values	Daily Returns

Visa Class A  vs.  Novus Acquisition and

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 latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Novus Acquisition

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Novus Acquisition and are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Novus Acquisition showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and Novus Acquisition

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

The idea behind Visa Class A and Novus Acquisition and 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.