Correlation Between Visa and American Funds

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

Diversification Opportunities for Visa and American Funds

-0.4

Correlation Coefficient

Visa  American Funds

Very good diversification

The 3 months correlation between Visa and American is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and American Funds Developing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Developing 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 Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Developing has no effect on the direction of Visa i.e., Visa and American Funds go up and down completely randomly.

Pair Corralation between Visa and American Funds

Taking into account the 90-day investment horizon Visa Class A is expected to generate 1.66 times more return on investment than American Funds. However, Visa is 1.66 times more volatile than American Funds Developing. It trades about 0.16 of its potential returns per unit of risk. American Funds Developing is currently generating about 0.04 per unit of risk. If you would invest  27,801  in Visa Class A on September 3, 2024 and sell it today you would earn a total of  3,707  from holding Visa Class A or generate 13.33% return on investment over 90 days.

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

Visa Class A  vs.  American Funds Developing

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.

American Funds Developing

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Developing are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Visa and American Funds

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

The idea behind Visa Class A and American Funds Developing 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.