Correlation Between Visa and Air Products

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

Diversification Opportunities for Visa and Air Products

0.63

Correlation Coefficient

Visa  Air Products

Poor diversification

The 3 months correlation between Visa and Air is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Air Products and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Products 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 Air Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Products has no effect on the direction of Visa i.e., Visa and Air Products go up and down completely randomly.

Pair Corralation between Visa and Air Products

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.63 times more return on investment than Air Products. However, Visa Class A is 1.59 times less risky than Air Products. It trades about 0.09 of its potential returns per unit of risk. Air Products and is currently generating about 0.04 per unit of risk. If you would invest  21,345  in Visa Class A on October 5, 2024 and sell it today you would earn a total of  10,095  from holding Visa Class A or generate 47.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.9%
Values	Daily Returns

Visa Class A  vs.  Air Products and

Visa Class A

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 16 (%) 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.

Air Products

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Air Products and are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Air Products sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and Air Products

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

The idea behind Visa Class A and Air Products and 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.