Correlation Between Visa and ARC Document

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

Diversification Opportunities for Visa and ARC Document

0.46

Correlation Coefficient

Visa  ARC Document

Very weak diversification

The 3 months correlation between Visa and ARC is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and ARC Document Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARC Document Solutions 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 ARC Document. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARC Document Solutions has no effect on the direction of Visa i.e., Visa and ARC Document go up and down completely randomly.

Pair Corralation between Visa and ARC Document

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.46 times more return on investment than ARC Document. However, Visa Class A is 2.18 times less risky than ARC Document. It trades about 0.09 of its potential returns per unit of risk. ARC Document Solutions is currently generating about 0.04 per unit of risk. If you would invest  20,975  in Visa Class A on September 3, 2024 and sell it today you would earn a total of  10,533  from holding Visa Class A or generate 50.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.99%
Values	Daily Returns

Visa Class A  vs.  ARC Document Solutions

Visa Class A

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 12 (%) 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.

ARC Document Solutions

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days ARC Document Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, ARC Document is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Visa and ARC Document

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

The idea behind Visa Class A and ARC Document Solutions 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.