Correlation Between Visa and BYD Company

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

Diversification Opportunities for Visa and BYD Company

0.71

Correlation Coefficient

Visa  BYD Company

Poor diversification

The 3 months correlation between Visa and BYD is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and BYD Company Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD Limited 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 BYD Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD Limited has no effect on the direction of Visa i.e., Visa and BYD Company go up and down completely randomly.

Pair Corralation between Visa and BYD Company

Taking into account the 90-day investment horizon Visa is expected to generate 5.85 times less return on investment than BYD Company. But when comparing it to its historical volatility, Visa Class A is 3.01 times less risky than BYD Company. It trades about 0.12 of its potential returns per unit of risk. BYD Company Limited is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  3,539  in BYD Company Limited on December 26, 2024 and sell it today you would earn a total of  1,815  from holding BYD Company Limited or generate 51.29% 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.  BYD Company Limited

Visa Class A

Risk-Adjusted Performance

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 April 2025.

BYD Limited

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BYD Company Limited are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent fundamental indicators, BYD Company reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and BYD Company

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

The idea behind Visa Class A and BYD Company Limited 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.