Correlation Between Visa and Lung Hwa

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

Diversification Opportunities for Visa and Lung Hwa

0.24

Correlation Coefficient

Visa  Lung Hwa

Modest diversification

The 3 months correlation between Visa and Lung is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Lung Hwa Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lung Hwa Electronics 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 Lung Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lung Hwa Electronics has no effect on the direction of Visa i.e., Visa and Lung Hwa go up and down completely randomly.

Pair Corralation between Visa and Lung Hwa

Taking into account the 90-day investment horizon Visa is expected to generate 1.25 times less return on investment than Lung Hwa. But when comparing it to its historical volatility, Visa Class A is 2.74 times less risky than Lung Hwa. It trades about 0.11 of its potential returns per unit of risk. Lung Hwa Electronics is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  6,060  in Lung Hwa Electronics on September 15, 2024 and sell it today you would earn a total of  440.00  from holding Lung Hwa Electronics or generate 7.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Visa Class A  vs.  Lung Hwa Electronics

Visa Class A

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Lung Hwa Electronics

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lung Hwa Electronics are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lung Hwa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Visa and Lung Hwa

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

The idea behind Visa Class A and Lung Hwa Electronics 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 Anywhere module to track or share privately all of your investments from the convenience of any device.