Correlation Between Visa and First American

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

Diversification Opportunities for Visa and First American

0.74

Correlation Coefficient

Visa  First American

Poor diversification

The 3 months correlation between Visa and First is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and First American Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First American Investment 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 First American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First American Investment has no effect on the direction of Visa i.e., Visa and First American go up and down completely randomly.

Pair Corralation between Visa and First American

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.88 times more return on investment than First American. However, Visa Class A is 1.14 times less risky than First American. It trades about 0.07 of its potential returns per unit of risk. First American Investment is currently generating about 0.06 per unit of risk. If you would invest  26,202  in Visa Class A on October 7, 2024 and sell it today you would earn a total of  5,289  from holding Visa Class A or generate 20.19% 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.  First American Investment

Visa Class A

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 16 (%) 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.

First American Investment

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First American Investment are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, First American is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Visa and First American

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

The idea behind Visa Class A and First American Investment 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.