Correlation Between Federal Agricultural and Visa

Can any of the company-specific risk be diversified away by investing in both Federal Agricultural and Visa 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 Federal Agricultural and Visa into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Federal Agricultural Mortgage and Visa Inc, you can compare the effects of market volatilities on Federal Agricultural and Visa 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 Federal Agricultural with a short position of Visa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Agricultural and Visa.

Diversification Opportunities for Federal Agricultural and Visa

-0.19

Correlation Coefficient

Federal Agricultural  Visa

Good diversification

The 3 months correlation between Federal and Visa is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and Visa Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Visa Inc and Federal Agricultural 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 Federal Agricultural Mortgage are associated (or correlated) with Visa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Visa Inc has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and Visa go up and down completely randomly.

Pair Corralation between Federal Agricultural and Visa

Assuming the 90 days horizon Federal Agricultural Mortgage is expected to under-perform the Visa. In addition to that, Federal Agricultural is 1.62 times more volatile than Visa Inc. It trades about -0.02 of its total potential returns per unit of risk. Visa Inc is currently generating about 0.24 per unit of volatility. If you would invest  29,950  in Visa Inc on December 1, 2024 and sell it today you would earn a total of  4,415  from holding Visa Inc or generate 14.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Federal Agricultural Mortgage  vs.  Visa Inc

Federal Agricultural

Risk-Adjusted Performance

Very Weak

Over the last 90 days Federal Agricultural Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Federal Agricultural is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Visa Inc

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Inc are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Visa exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal Agricultural and Visa

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

The idea behind Federal Agricultural Mortgage and Visa Inc 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.