Correlation Between Visa and INNOX Advanced

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

Diversification Opportunities for Visa and INNOX Advanced

-0.5

Correlation Coefficient

Visa  INNOX Advanced

Very good diversification

The 3 months correlation between Visa and INNOX is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and INNOX Advanced Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INNOX Advanced Materials 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 INNOX Advanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INNOX Advanced Materials has no effect on the direction of Visa i.e., Visa and INNOX Advanced go up and down completely randomly.

Pair Corralation between Visa and INNOX Advanced

Taking into account the 90-day investment horizon Visa is expected to generate 33.33 times less return on investment than INNOX Advanced. But when comparing it to its historical volatility, Visa Class A is 3.96 times less risky than INNOX Advanced. It trades about 0.05 of its potential returns per unit of risk. INNOX Advanced Materials is currently generating about 0.44 of returns per unit of risk over similar time horizon. If you would invest  2,054,747  in INNOX Advanced Materials on October 24, 2024 and sell it today you would earn a total of  690,253  from holding INNOX Advanced Materials or generate 33.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	90.0%
Values	Daily Returns

Visa Class A  vs.  INNOX Advanced Materials

Visa Class A

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

INNOX Advanced Materials

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in INNOX Advanced Materials are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, INNOX Advanced sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and INNOX Advanced

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

The idea behind Visa Class A and INNOX Advanced Materials 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.