Correlation Between Visa and Naturgy Energy

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

Diversification Opportunities for Visa and Naturgy Energy

0.75

Correlation Coefficient

Visa  Naturgy Energy

Poor diversification

The 3 months correlation between Visa and Naturgy is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Naturgy Energy Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Naturgy Energy Group 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 Naturgy Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Naturgy Energy Group has no effect on the direction of Visa i.e., Visa and Naturgy Energy go up and down completely randomly.

Pair Corralation between Visa and Naturgy Energy

Taking into account the 90-day investment horizon Visa is expected to generate 1.79 times less return on investment than Naturgy Energy. But when comparing it to its historical volatility, Visa Class A is 1.44 times less risky than Naturgy Energy. It trades about 0.11 of its potential returns per unit of risk. Naturgy Energy Group is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,270  in Naturgy Energy Group on December 19, 2024 and sell it today you would earn a total of  268.00  from holding Naturgy Energy Group or generate 11.81% 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.  Naturgy Energy Group

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 8 (%) 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.

Naturgy Energy Group

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Naturgy Energy Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Naturgy Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and Naturgy Energy

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

The idea behind Visa Class A and Naturgy Energy Group 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.