Correlation Between Visa and AAP

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

Diversification Opportunities for Visa and AAP

-0.58

Correlation Coefficient

Visa  AAP

Excellent diversification

The 3 months correlation between Visa and AAP is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and AAP Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAP Inc 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 AAP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAP Inc has no effect on the direction of Visa i.e., Visa and AAP go up and down completely randomly.

Pair Corralation between Visa and AAP

Taking into account the 90-day investment horizon Visa is expected to generate 23.78 times less return on investment than AAP. But when comparing it to its historical volatility, Visa Class A is 26.69 times less risky than AAP. It trades about 0.09 of its potential returns per unit of risk. AAP Inc is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1.20  in AAP Inc on September 13, 2024 and sell it today you would lose (1.18) from holding AAP Inc or give up 98.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Visa Class A  vs.  AAP Inc

Visa Class A

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 9 (%) 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 January 2025.

AAP Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AAP Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, AAP revealed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and AAP

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

The idea behind Visa Class A and AAP Inc 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.