Correlation Between Visa and DBC

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

Diversification Opportunities for Visa and DBC

-0.63

Correlation Coefficient

Visa  DBC

Excellent diversification

The 3 months correlation between Visa and DBC is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and DBC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DBC 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 DBC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DBC has no effect on the direction of Visa i.e., Visa and DBC go up and down completely randomly.

Pair Corralation between Visa and DBC

Taking into account the 90-day investment horizon Visa is expected to generate 8.52 times less return on investment than DBC. But when comparing it to its historical volatility, Visa Class A is 15.55 times less risky than DBC. It trades about 0.11 of its potential returns per unit of risk. DBC is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  0.38  in DBC on December 26, 2024 and sell it today you would lose  0.00  from holding DBC or give up 0.72% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.31%
Values	Daily Returns

Visa Class A  vs.  DBC

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 8 (%) 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.

DBC

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in DBC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, DBC exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and DBC

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

The idea behind Visa Class A and DBC 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.