Correlation Between Visa and FlexShares STOXX

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

Diversification Opportunities for Visa and FlexShares STOXX

0.82

Correlation Coefficient

Visa  FlexShares STOXX

Very poor diversification

The 3 months correlation between Visa and FlexShares is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and FlexShares STOXX Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares STOXX Global 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 FlexShares STOXX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares STOXX Global has no effect on the direction of Visa i.e., Visa and FlexShares STOXX go up and down completely randomly.

Pair Corralation between Visa and FlexShares STOXX

Taking into account the 90-day investment horizon Visa Class A is expected to generate 1.67 times more return on investment than FlexShares STOXX. However, Visa is 1.67 times more volatile than FlexShares STOXX Global. It trades about 0.06 of its potential returns per unit of risk. FlexShares STOXX Global is currently generating about 0.04 per unit of risk. If you would invest  34,524  in Visa Class A on December 5, 2024 and sell it today you would earn a total of  428.00  from holding Visa Class A or generate 1.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Visa Class A  vs.  FlexShares STOXX Global

Visa Class A

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 23 (%) 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.

FlexShares STOXX Global

Risk-Adjusted Performance

Very Weak

Over the last 90 days FlexShares STOXX Global has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, FlexShares STOXX is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Visa and FlexShares STOXX

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

The idea behind Visa Class A and FlexShares STOXX Global 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.