Correlation Between Visa and FD Technologies

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

Diversification Opportunities for Visa and FD Technologies

0.7

Correlation Coefficient

Visa  FD Technologies

Poor diversification

The 3 months correlation between Visa and FDRVF is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and FD Technologies Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FD Technologies Plc 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 FD Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FD Technologies Plc has no effect on the direction of Visa i.e., Visa and FD Technologies go up and down completely randomly.

Pair Corralation between Visa and FD Technologies

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.42 times more return on investment than FD Technologies. However, Visa Class A is 2.36 times less risky than FD Technologies. It trades about 0.11 of its potential returns per unit of risk. FD Technologies Plc is currently generating about 0.04 per unit of risk. If you would invest  22,902  in Visa Class A on September 26, 2024 and sell it today you would earn a total of  8,820  from holding Visa Class A or generate 38.51% return on investment over 90 days.

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

Visa Class A  vs.  FD Technologies Plc

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.

FD Technologies Plc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FD Technologies Plc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, FD Technologies reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and FD Technologies

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

The idea behind Visa Class A and FD Technologies Plc 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.