Correlation Between Visa and Graham

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

Diversification Opportunities for Visa and Graham

0.86

Correlation Coefficient

Visa  Graham

Very poor diversification

The 3 months correlation between Visa and Graham is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Graham in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Graham 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 Graham. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Graham has no effect on the direction of Visa i.e., Visa and Graham go up and down completely randomly.

Pair Corralation between Visa and Graham

Taking into account the 90-day investment horizon Visa is expected to generate 3.4 times less return on investment than Graham. But when comparing it to its historical volatility, Visa Class A is 2.47 times less risky than Graham. It trades about 0.16 of its potential returns per unit of risk. Graham is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2,965  in Graham on September 1, 2024 and sell it today you would earn a total of  1,517  from holding Graham or generate 51.16% return on investment over 90 days.

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

Visa Class A  vs.  Graham

Visa Class A

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 12 (%) 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.

Graham

Risk-Adjusted Performance

17 of 100

Solid

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

Pair Trading with Visa and Graham

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

The idea behind Visa Class A and Graham 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.