Correlation Between General American and Visa

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

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

Diversification Opportunities for General American and Visa

0.21

Correlation Coefficient

General American  Visa

Modest diversification

The 3 months correlation between General and Visa is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding General American Investors 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 General American 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 General American Investors 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 General American i.e., General American and Visa go up and down completely randomly.

Pair Corralation between General American and Visa

Considering the 90-day investment horizon General American Investors is expected to under-perform the Visa. But the stock apears to be less risky and, when comparing its historical volatility, General American Investors is 1.58 times less risky than Visa. The stock trades about -0.01 of its potential returns per unit of risk. The Visa Class A is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  31,669  in Visa Class A on December 23, 2024 and sell it today you would earn a total of  1,897  from holding Visa Class A or generate 5.99% return on investment over 90 days.

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

General American Investors  vs.  Visa Class A

General American Inv

Risk-Adjusted Performance

Very Weak

Over the last 90 days General American Investors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, General American is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

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 7 (%) 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 General American and Visa

The main advantage of trading using opposite General American and Visa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General American 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 General American Investors 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.

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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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.