Correlation Between Visa and China Resources

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

Diversification Opportunities for Visa and China Resources

-0.74

Correlation Coefficient

Visa  China Resources

Pay attention - limited upside

The 3 months correlation between Visa and China is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and China Resources Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Resources Land 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 China Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Resources Land has no effect on the direction of Visa i.e., Visa and China Resources go up and down completely randomly.

Pair Corralation between Visa and China Resources

Taking into account the 90-day investment horizon Visa is expected to generate 4.23 times less return on investment than China Resources. But when comparing it to its historical volatility, Visa Class A is 4.54 times less risky than China Resources. It trades about 0.07 of its potential returns per unit of risk. China Resources Land is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  156.00  in China Resources Land on October 10, 2024 and sell it today you would earn a total of  112.00  from holding China Resources Land or generate 71.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.2%
Values	Daily Returns

Visa Class A  vs.  China Resources Land

Visa Class A

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 14 (%) 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 February 2025.

China Resources Land

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Resources Land has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Visa and China Resources

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

The idea behind Visa Class A and China Resources Land 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.