Correlation Between Credit Acceptance and Visa

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

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

Diversification Opportunities for Credit Acceptance and Visa

0.6

Correlation Coefficient

Credit Acceptance  Visa

Poor diversification

The 3 months correlation between Credit and Visa is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Credit Acceptance and Visa Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Visa Class A and Credit Acceptance 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 Credit Acceptance 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 Class A has no effect on the direction of Credit Acceptance i.e., Credit Acceptance and Visa go up and down completely randomly.

Pair Corralation between Credit Acceptance and Visa

Given the investment horizon of 90 days Credit Acceptance is expected to generate 1.76 times more return on investment than Visa. However, Credit Acceptance is 1.76 times more volatile than Visa Class A. It trades about 0.08 of its potential returns per unit of risk. Visa Class A is currently generating about 0.12 per unit of risk. If you would invest  47,282  in Credit Acceptance on December 26, 2024 and sell it today you would earn a total of  4,175  from holding Credit Acceptance or generate 8.83% return on investment over 90 days.

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

Credit Acceptance  vs.  Visa Class A

Credit Acceptance

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Credit Acceptance are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Credit Acceptance may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Visa Class A

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Credit Acceptance and Visa

The main advantage of trading using opposite Credit Acceptance and Visa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Credit Acceptance 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 Credit Acceptance and Visa Class A 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.