Correlation Between Visa and American Business

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

Diversification Opportunities for Visa and American Business

0.69

Correlation Coefficient

Visa  American Business

Poor diversification

The 3 months correlation between Visa and American is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and American Business Bk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Business 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 American Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Business has no effect on the direction of Visa i.e., Visa and American Business go up and down completely randomly.

Pair Corralation between Visa and American Business

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.56 times more return on investment than American Business. However, Visa Class A is 1.78 times less risky than American Business. It trades about 0.29 of its potential returns per unit of risk. American Business Bk is currently generating about 0.05 per unit of risk. If you would invest  33,392  in Visa Class A on November 29, 2024 and sell it today you would earn a total of  1,671  from holding Visa Class A or generate 5.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Visa Class A  vs.  American Business Bk

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 16 (%) 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 March 2025.

American Business

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Business Bk has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental drivers, American Business is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Visa and American Business

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

The idea behind Visa Class A and American Business Bk 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.