Correlation Between Visa and Ellington Financial

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

Diversification Opportunities for Visa and Ellington Financial

0.76

Correlation Coefficient

Visa  Ellington Financial

Poor diversification

The 3 months correlation between Visa and Ellington is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Ellington Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ellington Financial 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 Ellington Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ellington Financial has no effect on the direction of Visa i.e., Visa and Ellington Financial go up and down completely randomly.

Pair Corralation between Visa and Ellington Financial

Taking into account the 90-day investment horizon Visa Class A is expected to generate 1.03 times more return on investment than Ellington Financial. However, Visa is 1.03 times more volatile than Ellington Financial. It trades about 0.07 of its potential returns per unit of risk. Ellington Financial is currently generating about 0.05 per unit of risk. If you would invest  22,044  in Visa Class A on October 15, 2024 and sell it today you would earn a total of  8,727  from holding Visa Class A or generate 39.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.14%
Values	Daily Returns

Visa Class A  vs.  Ellington Financial

Visa Class A

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 11 (%) 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.

Ellington Financial

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Ellington Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Ellington Financial is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Visa and Ellington Financial

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

The idea behind Visa Class A and Ellington Financial 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.