Correlation Between Visa and Dong Ah

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

Diversification Opportunities for Visa and Dong Ah

-0.09

Correlation Coefficient

Visa  Dong Ah

Good diversification

The 3 months correlation between Visa and Dong is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Dong Ah Tire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dong Ah Tire 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 Dong Ah. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dong Ah Tire has no effect on the direction of Visa i.e., Visa and Dong Ah go up and down completely randomly.

Pair Corralation between Visa and Dong Ah

Taking into account the 90-day investment horizon Visa Class A is expected to under-perform the Dong Ah. But the stock apears to be less risky and, when comparing its historical volatility, Visa Class A is 1.35 times less risky than Dong Ah. The stock trades about -0.15 of its potential returns per unit of risk. The Dong Ah Tire is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,874,000  in Dong Ah Tire on October 15, 2024 and sell it today you would earn a total of  26,000  from holding Dong Ah Tire or generate 1.39% return on investment over 90 days.

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

Visa Class A  vs.  Dong Ah Tire

Visa Class A

Risk-Adjusted Performance

11 of 100

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 February 2025.

Dong Ah Tire

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dong Ah Tire are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Dong Ah is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Visa and Dong Ah

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

The idea behind Visa Class A and Dong Ah Tire 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.