Correlation Between Visa and Synchrony Financial

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

Diversification Opportunities for Visa and Synchrony Financial

0.63

Correlation Coefficient

Visa  Synchrony Financial

Poor diversification

The 3 months correlation between Visa and Synchrony is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Synchrony Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Synchrony Financial 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 Synchrony Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Synchrony Financial has no effect on the direction of Visa i.e., Visa and Synchrony Financial go up and down completely randomly.

Pair Corralation between Visa and Synchrony Financial

Taking into account the 90-day investment horizon Visa Class A is expected to under-perform the Synchrony Financial. But the stock apears to be less risky and, when comparing its historical volatility, Visa Class A is 2.52 times less risky than Synchrony Financial. The stock trades about -0.18 of its potential returns per unit of risk. The Synchrony Financial is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  4,132  in Synchrony Financial on January 25, 2024 and sell it today you would earn a total of  154.00  from holding Synchrony Financial or generate 3.73% return on investment over 90 days.

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

Visa Class A  vs.  Synchrony Financial

Visa Class A

Risk-Adjusted Performance

1 of 100

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

Synchrony Financial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Synchrony Financial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Synchrony Financial may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Visa and Synchrony Financial

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

The idea behind Visa Class A and Synchrony Financial 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.