Correlation Between Visa and LG Battery

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

Diversification Opportunities for Visa and LG Battery

0.54

Correlation Coefficient

Visa  LG Battery

Very weak diversification

The 3 months correlation between Visa and BATT is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and LG Battery Value Chain in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Battery Value 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 LG Battery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Battery Value has no effect on the direction of Visa i.e., Visa and LG Battery go up and down completely randomly.

Pair Corralation between Visa and LG Battery

Taking into account the 90-day investment horizon Visa is expected to generate 4.53 times less return on investment than LG Battery. But when comparing it to its historical volatility, Visa Class A is 1.22 times less risky than LG Battery. It trades about 0.06 of its potential returns per unit of risk. LG Battery Value Chain is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,477  in LG Battery Value Chain on September 30, 2024 and sell it today you would earn a total of  74.00  from holding LG Battery Value Chain or generate 5.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	90.48%
Values	Daily Returns

Visa Class A  vs.  LG Battery Value Chain

Visa Class A

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 17 (%) 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.

LG Battery Value

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LG Battery Value Chain are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, LG Battery is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Visa and LG Battery

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

The idea behind Visa Class A and LG Battery Value Chain 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.