Correlation Between Visa and Dermapharm Holding

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

Diversification Opportunities for Visa and Dermapharm Holding

0.62

Correlation Coefficient

Visa  Dermapharm Holding

Poor diversification

The 3 months correlation between Visa and Dermapharm is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Dermapharm Holding SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dermapharm Holding 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 Dermapharm Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dermapharm Holding has no effect on the direction of Visa i.e., Visa and Dermapharm Holding go up and down completely randomly.

Pair Corralation between Visa and Dermapharm Holding

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.54 times more return on investment than Dermapharm Holding. However, Visa Class A is 1.87 times less risky than Dermapharm Holding. It trades about 0.23 of its potential returns per unit of risk. Dermapharm Holding SE is currently generating about 0.07 per unit of risk. If you would invest  27,464  in Visa Class A on September 27, 2024 and sell it today you would earn a total of  4,627  from holding Visa Class A or generate 16.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Visa Class A  vs.  Dermapharm Holding SE

Visa Class A

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 18 (%) 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.

Dermapharm Holding

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dermapharm Holding SE are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Dermapharm Holding may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Visa and Dermapharm Holding

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

The idea behind Visa Class A and Dermapharm Holding SE 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.