Correlation Between Visa and Shenwan Hongyuan

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

Diversification Opportunities for Visa and Shenwan Hongyuan

0.48

Correlation Coefficient

Visa  Shenwan Hongyuan

Very weak diversification

The 3 months correlation between Visa and Shenwan is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Shenwan Hongyuan Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenwan Hongyuan 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 Shenwan Hongyuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenwan Hongyuan has no effect on the direction of Visa i.e., Visa and Shenwan Hongyuan go up and down completely randomly.

Pair Corralation between Visa and Shenwan Hongyuan

Taking into account the 90-day investment horizon Visa is expected to generate 1.95 times less return on investment than Shenwan Hongyuan. But when comparing it to its historical volatility, Visa Class A is 1.09 times less risky than Shenwan Hongyuan. It trades about 0.08 of its potential returns per unit of risk. Shenwan Hongyuan Group is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  525.00  in Shenwan Hongyuan Group on September 24, 2024 and sell it today you would earn a total of  16.00  from holding Shenwan Hongyuan Group or generate 3.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Visa Class A  vs.  Shenwan Hongyuan Group

Visa Class A

Risk-Adjusted Performance

17 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

Shenwan Hongyuan

Risk-Adjusted Performance

8 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shenwan Hongyuan Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenwan Hongyuan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and Shenwan Hongyuan

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

The idea behind Visa Class A and Shenwan Hongyuan Group 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.