Correlation Between Visa and Tonghua Grape

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

Diversification Opportunities for Visa and Tonghua Grape

-0.39

Correlation Coefficient

Visa  Tonghua Grape

Very good diversification

The 3 months correlation between Visa and Tonghua is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Tonghua Grape Wine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tonghua Grape Wine 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 Tonghua Grape. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tonghua Grape Wine has no effect on the direction of Visa i.e., Visa and Tonghua Grape go up and down completely randomly.

Pair Corralation between Visa and Tonghua Grape

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.62 times more return on investment than Tonghua Grape. However, Visa Class A is 1.62 times less risky than Tonghua Grape. It trades about 0.13 of its potential returns per unit of risk. Tonghua Grape Wine is currently generating about -0.13 per unit of risk. If you would invest  31,478  in Visa Class A on December 29, 2024 and sell it today you would earn a total of  2,807  from holding Visa Class A or generate 8.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.08%
Values	Daily Returns

Visa Class A  vs.  Tonghua Grape Wine

Visa Class A

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Tonghua Grape Wine

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tonghua Grape Wine has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Visa and Tonghua Grape

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

The idea behind Visa Class A and Tonghua Grape Wine 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.