Correlation Between Visa and Fidelity Covington

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

Diversification Opportunities for Visa and Fidelity Covington

0.77

Correlation Coefficient

Visa  Fidelity Covington

Poor diversification

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

Pair Corralation between Visa and Fidelity Covington

Taking into account the 90-day investment horizon Visa is expected to generate 1.26 times less return on investment than Fidelity Covington. In addition to that, Visa is 1.06 times more volatile than Fidelity Covington Trust. It trades about 0.09 of its total potential returns per unit of risk. Fidelity Covington Trust is currently generating about 0.12 per unit of volatility. If you would invest  1,829  in Fidelity Covington Trust on September 16, 2024 and sell it today you would earn a total of  1,381  from holding Fidelity Covington Trust or generate 75.51% 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.  Fidelity Covington Trust

Visa Class A

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Fidelity Covington Trust

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Covington Trust are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Fidelity Covington is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Visa and Fidelity Covington

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

The idea behind Visa Class A and Fidelity Covington Trust 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.