Correlation Between Visa and Hanwha Aerospace

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

Diversification Opportunities for Visa and Hanwha Aerospace

0.64

Correlation Coefficient

Visa  Hanwha Aerospace

Poor diversification

The 3 months correlation between Visa and Hanwha is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Hanwha Aerospace Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hanwha Aerospace 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 Hanwha Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hanwha Aerospace has no effect on the direction of Visa i.e., Visa and Hanwha Aerospace go up and down completely randomly.

Pair Corralation between Visa and Hanwha Aerospace

Taking into account the 90-day investment horizon Visa is expected to generate 8.78 times less return on investment than Hanwha Aerospace. But when comparing it to its historical volatility, Visa Class A is 4.92 times less risky than Hanwha Aerospace. It trades about 0.13 of its potential returns per unit of risk. Hanwha Aerospace Co is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  32,650,000  in Hanwha Aerospace Co on December 28, 2024 and sell it today you would earn a total of  30,350,000  from holding Hanwha Aerospace Co or generate 92.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.08%
Values	Daily Returns

Visa Class A  vs.  Hanwha Aerospace Co

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 10 (%) 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.

Hanwha Aerospace

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hanwha Aerospace Co are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hanwha Aerospace sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and Hanwha Aerospace

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

The idea behind Visa Class A and Hanwha Aerospace Co 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.