Correlation Between Visa and Alpha Architect

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

Diversification Opportunities for Visa and Alpha Architect

-0.45

Correlation Coefficient

Visa  Alpha Architect

Very good diversification

The 3 months correlation between Visa and Alpha is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Alpha Architect High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpha Architect High 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 Alpha Architect. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alpha Architect High has no effect on the direction of Visa i.e., Visa and Alpha Architect go up and down completely randomly.

Pair Corralation between Visa and Alpha Architect

Taking into account the 90-day investment horizon Visa Class A is expected to generate 3.22 times more return on investment than Alpha Architect. However, Visa is 3.22 times more volatile than Alpha Architect High. It trades about 0.34 of its potential returns per unit of risk. Alpha Architect High is currently generating about 0.24 per unit of risk. If you would invest  29,018  in Visa Class A on September 2, 2024 and sell it today you would earn a total of  2,490  from holding Visa Class A or generate 8.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Visa Class A  vs.  Alpha Architect High

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.

Alpha Architect High

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alpha Architect High are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Alpha Architect is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Visa and Alpha Architect

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

The idea behind Visa Class A and Alpha Architect High 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.