Correlation Between Visa and Bumitama Agri

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

Diversification Opportunities for Visa and Bumitama Agri

-0.57

Correlation Coefficient

Visa  Bumitama Agri

Excellent diversification

The 3 months correlation between Visa and Bumitama is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Bumitama Agri in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bumitama Agri 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 Bumitama Agri. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bumitama Agri has no effect on the direction of Visa i.e., Visa and Bumitama Agri go up and down completely randomly.

Pair Corralation between Visa and Bumitama Agri

Taking into account the 90-day investment horizon Visa is expected to generate 1.47 times less return on investment than Bumitama Agri. But when comparing it to its historical volatility, Visa Class A is 3.04 times less risky than Bumitama Agri. It trades about 0.28 of its potential returns per unit of risk. Bumitama Agri is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  58.00  in Bumitama Agri on December 5, 2024 and sell it today you would earn a total of  4.00  from holding Bumitama Agri or generate 6.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Visa Class A  vs.  Bumitama Agri

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.

Bumitama Agri

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bumitama Agri has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Bumitama Agri is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Visa and Bumitama Agri

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

The idea behind Visa Class A and Bumitama Agri 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.