Correlation Between Visa and Prime Oil

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

Diversification Opportunities for Visa and Prime Oil

0.12

Correlation Coefficient

Visa  Prime Oil

Average diversification

The 3 months correlation between Visa and Prime is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Prime Oil Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prime Oil Chemical 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 Prime Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prime Oil Chemical has no effect on the direction of Visa i.e., Visa and Prime Oil go up and down completely randomly.

Pair Corralation between Visa and Prime Oil

Taking into account the 90-day investment horizon Visa Class A is expected to generate 2.02 times more return on investment than Prime Oil. However, Visa is 2.02 times more volatile than Prime Oil Chemical. It trades about 0.14 of its potential returns per unit of risk. Prime Oil Chemical is currently generating about 0.09 per unit of risk. If you would invest  34,524  in Visa Class A on December 4, 2024 and sell it today you would earn a total of  952.00  from holding Visa Class A or generate 2.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Visa Class A  vs.  Prime Oil Chemical

Visa Class A

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 23 (%) 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.

Prime Oil Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prime Oil Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Prime Oil is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Visa and Prime Oil

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

The idea behind Visa Class A and Prime Oil Chemical 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.