Correlation Between Visa and Guangdong Transtek

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

Diversification Opportunities for Visa and Guangdong Transtek

0.73

Correlation Coefficient

Visa  Guangdong Transtek

Poor diversification

The 3 months correlation between Visa and Guangdong is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Guangdong Transtek Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Transtek 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 Guangdong Transtek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Transtek has no effect on the direction of Visa i.e., Visa and Guangdong Transtek go up and down completely randomly.

Pair Corralation between Visa and Guangdong Transtek

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.14 times more return on investment than Guangdong Transtek. However, Visa Class A is 7.16 times less risky than Guangdong Transtek. It trades about 0.01 of its potential returns per unit of risk. Guangdong Transtek Medical is currently generating about -0.08 per unit of risk. If you would invest  31,238  in Visa Class A on October 11, 2024 and sell it today you would earn a total of  22.00  from holding Visa Class A or generate 0.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Visa Class A  vs.  Guangdong Transtek Medical

Visa Class A

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 14 (%) 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.

Guangdong Transtek

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Transtek Medical are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Transtek may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Visa and Guangdong Transtek

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

The idea behind Visa Class A and Guangdong Transtek Medical 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.