Correlation Between Visa and China Tianying

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

Diversification Opportunities for Visa and China Tianying

-0.57

Correlation Coefficient

Visa  China Tianying

Excellent diversification

The 3 months correlation between Visa and China is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and China Tianying in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Tianying 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 China Tianying. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Tianying has no effect on the direction of Visa i.e., Visa and China Tianying go up and down completely randomly.

Pair Corralation between Visa and China Tianying

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.69 times more return on investment than China Tianying. However, Visa Class A is 1.46 times less risky than China Tianying. It trades about 0.25 of its potential returns per unit of risk. China Tianying is currently generating about 0.17 per unit of risk. If you would invest  30,719  in Visa Class A on December 11, 2024 and sell it today you would earn a total of  3,429  from holding Visa Class A or generate 11.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	90.0%
Values	Daily Returns

Visa Class A  vs.  China Tianying

Visa Class A

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 11 (%) 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.

China Tianying

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Tianying has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Visa and China Tianying

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

The idea behind Visa Class A and China Tianying 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.