Correlation Between Visa and Financial Services

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

Diversification Opportunities for Visa and Financial Services

0.23

Correlation Coefficient

Visa  Financial Services

Modest diversification

The 3 months correlation between Visa and Financial is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Financial Services Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Services 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 Financial Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Services has no effect on the direction of Visa i.e., Visa and Financial Services go up and down completely randomly.

Pair Corralation between Visa and Financial Services

Taking into account the 90-day investment horizon Visa Class A is expected to under-perform the Financial Services. In addition to that, Visa is 1.06 times more volatile than Financial Services Portfolio. It trades about -0.14 of its total potential returns per unit of risk. Financial Services Portfolio is currently generating about 0.02 per unit of volatility. If you would invest  913.00  in Financial Services Portfolio on February 2, 2024 and sell it today you would earn a total of  4.00  from holding Financial Services Portfolio or generate 0.44% return on investment over 90 days.

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

Visa Class A  vs.  Financial Services Portfolio

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.

Financial Services

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Services Portfolio are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Financial Services is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Visa and Financial Services

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

The idea behind Visa Class A and Financial Services Portfolio 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.