Correlation Between Visa and CTBC Treasury

Can any of the company-specific risk be diversified away by investing in both Visa and CTBC Treasury 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 CTBC Treasury 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 CTBC Treasury 20, you can compare the effects of market volatilities on Visa and CTBC Treasury 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 CTBC Treasury. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and CTBC Treasury.

Diversification Opportunities for Visa and CTBC Treasury

-0.33

Correlation Coefficient

Visa  CTBC Treasury

Very good diversification

The 3 months correlation between Visa and CTBC is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and CTBC Treasury 20 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CTBC Treasury 20 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 CTBC Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CTBC Treasury 20 has no effect on the direction of Visa i.e., Visa and CTBC Treasury go up and down completely randomly.

Pair Corralation between Visa and CTBC Treasury

Taking into account the 90-day investment horizon Visa Class A is expected to generate 1.23 times more return on investment than CTBC Treasury. However, Visa is 1.23 times more volatile than CTBC Treasury 20. It trades about 0.08 of its potential returns per unit of risk. CTBC Treasury 20 is currently generating about -0.01 per unit of risk. If you would invest  21,701  in Visa Class A on October 10, 2024 and sell it today you would earn a total of  9,466  from holding Visa Class A or generate 43.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.17%
Values	Daily Returns

Visa Class A  vs.  CTBC Treasury 20

Visa Class A

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 14 (%) 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.

CTBC Treasury 20

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CTBC Treasury 20 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CTBC Treasury 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 CTBC Treasury

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

The idea behind Visa Class A and CTBC Treasury 20 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.