Correlation Between Visa and CEA Industries

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

Diversification Opportunities for Visa and CEA Industries

0.24

Correlation Coefficient

Visa  CEA Industries

Modest diversification

The 3 months correlation between Visa and CEA is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and CEA Industries Warrant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEA Industries Warrant 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 CEA Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEA Industries Warrant has no effect on the direction of Visa i.e., Visa and CEA Industries go up and down completely randomly.

Pair Corralation between Visa and CEA Industries

Taking into account the 90-day investment horizon Visa is expected to generate 41.94 times less return on investment than CEA Industries. But when comparing it to its historical volatility, Visa Class A is 23.13 times less risky than CEA Industries. It trades about 0.08 of its potential returns per unit of risk. CEA Industries Warrant is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  0.98  in CEA Industries Warrant on December 25, 2024 and sell it today you would earn a total of  0.48  from holding CEA Industries Warrant or generate 48.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	74.58%
Values	Daily Returns

Visa Class A  vs.  CEA Industries Warrant

Visa Class A

Risk-Adjusted Performance

Modest

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

CEA Industries Warrant

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CEA Industries Warrant are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental indicators, CEA Industries showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and CEA Industries

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

The idea behind Visa Class A and CEA Industries Warrant 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.