Correlation Between Regional Management and Visa

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

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

Diversification Opportunities for Regional Management and Visa

0.08

Correlation Coefficient

Regional Management  Visa

Significant diversification

The 3 months correlation between Regional and Visa is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Regional Management Corp 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 Regional Management 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 Regional Management Corp 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 Regional Management i.e., Regional Management and Visa go up and down completely randomly.

Pair Corralation between Regional Management and Visa

Allowing for the 90-day total investment horizon Regional Management Corp is expected to generate 2.66 times more return on investment than Visa. However, Regional Management is 2.66 times more volatile than Visa Class A. It trades about 0.07 of its potential returns per unit of risk. Visa Class A is currently generating about 0.08 per unit of risk. If you would invest  2,364  in Regional Management Corp on September 13, 2024 and sell it today you would earn a total of  1,031  from holding Regional Management Corp or generate 43.61% return on investment over 90 days.

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

Regional Management Corp  vs.  Visa Class A

Regional Management Corp

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Regional Management Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, Regional Management 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

9 of 100

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 January 2025.

Pair Trading with Regional Management and Visa

The main advantage of trading using opposite Regional Management and Visa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Regional Management 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 Regional Management Corp 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.