Correlation Between Visa and Babcock Wilcox

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

Diversification Opportunities for Visa and Babcock Wilcox

0.37

Correlation Coefficient

Visa  Babcock Wilcox

Weak diversification

The 3 months correlation between Visa and Babcock is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Babcock Wilcox Enterprises, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Babcock Wilcox Enter 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 Babcock Wilcox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Babcock Wilcox Enter has no effect on the direction of Visa i.e., Visa and Babcock Wilcox go up and down completely randomly.

Pair Corralation between Visa and Babcock Wilcox

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.49 times more return on investment than Babcock Wilcox. However, Visa Class A is 2.04 times less risky than Babcock Wilcox. It trades about 0.09 of its potential returns per unit of risk. Babcock Wilcox Enterprises, is currently generating about 0.03 per unit of risk. If you would invest  20,470  in Visa Class A on September 5, 2024 and sell it today you would earn a total of  10,831  from holding Visa Class A or generate 52.91% return on investment over 90 days.

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

Visa Class A  vs.  Babcock Wilcox Enterprises,

Visa Class A

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 11 (%) 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.

Babcock Wilcox Enter

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Babcock Wilcox Enterprises, are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Babcock Wilcox displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and Babcock Wilcox

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

The idea behind Visa Class A and Babcock Wilcox Enterprises, 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.