Correlation Between Visa and Industrial Bank

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

Diversification Opportunities for Visa and Industrial Bank

0.78

Correlation Coefficient

Visa  Industrial Bank

Poor diversification

The 3 months correlation between Visa and Industrial is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Industrial Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial Bank 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 Industrial Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial Bank has no effect on the direction of Visa i.e., Visa and Industrial Bank go up and down completely randomly.

Pair Corralation between Visa and Industrial Bank

Taking into account the 90-day investment horizon Visa is expected to generate 1.03 times less return on investment than Industrial Bank. In addition to that, Visa is 1.48 times more volatile than Industrial Bank. It trades about 0.13 of its total potential returns per unit of risk. Industrial Bank is currently generating about 0.2 per unit of volatility. If you would invest  1,334,603  in Industrial Bank on December 30, 2024 and sell it today you would earn a total of  119,397  from holding Industrial Bank or generate 8.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.16%
Values	Daily Returns

Visa Class A  vs.  Industrial Bank

Visa Class A

Risk-Adjusted Performance

OK

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.

Industrial Bank

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Bank are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Industrial Bank may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Visa and Industrial Bank

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

The idea behind Visa Class A and Industrial Bank 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.