Correlation Between Visa and SPDR EURO

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

Diversification Opportunities for Visa and SPDR EURO

0.77

Correlation Coefficient

Visa  SPDR EURO

Poor diversification

The 3 months correlation between Visa and SPDR is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and SPDR EURO STOXX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR EURO STOXX 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 SPDR EURO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR EURO STOXX has no effect on the direction of Visa i.e., Visa and SPDR EURO go up and down completely randomly.

Pair Corralation between Visa and SPDR EURO

Taking into account the 90-day investment horizon Visa Class A is expected to under-perform the SPDR EURO. But the stock apears to be less risky and, when comparing its historical volatility, Visa Class A is 1.01 times less risky than SPDR EURO. The stock trades about -0.04 of its potential returns per unit of risk. The SPDR EURO STOXX is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  5,417  in SPDR EURO STOXX on December 26, 2024 and sell it today you would earn a total of  224.00  from holding SPDR EURO STOXX or generate 4.14% 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.  SPDR EURO STOXX

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 9 (%) 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.

SPDR EURO STOXX

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR EURO STOXX are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical and fundamental indicators, SPDR EURO showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and SPDR EURO

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

The idea behind Visa Class A and SPDR EURO STOXX 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.