Correlation Between Visa and Hilltop Holdings

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

Diversification Opportunities for Visa and Hilltop Holdings

0.32

Correlation Coefficient

Visa  Hilltop Holdings

Weak diversification

The 3 months correlation between Visa and Hilltop is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Hilltop Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hilltop Holdings 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 Hilltop Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hilltop Holdings has no effect on the direction of Visa i.e., Visa and Hilltop Holdings go up and down completely randomly.

Pair Corralation between Visa and Hilltop Holdings

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.58 times more return on investment than Hilltop Holdings. However, Visa Class A is 1.74 times less risky than Hilltop Holdings. It trades about 0.21 of its potential returns per unit of risk. Hilltop Holdings is currently generating about 0.02 per unit of risk. If you would invest  31,455  in Visa Class A on November 29, 2024 and sell it today you would earn a total of  3,608  from holding Visa Class A or generate 11.47% return on investment over 90 days.

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

Visa Class A  vs.  Hilltop Holdings

Visa Class A

Risk-Adjusted Performance

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 may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Hilltop Holdings

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hilltop Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Hilltop Holdings is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Visa and Hilltop Holdings

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

The idea behind Visa Class A and Hilltop Holdings 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.