Correlation Between Visa and IShares SP

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

Diversification Opportunities for Visa and IShares SP

0.67

Correlation Coefficient

Visa  IShares SP

Poor diversification

The 3 months correlation between Visa and IShares is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and iShares SP SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP SmallCap 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 IShares SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP SmallCap has no effect on the direction of Visa i.e., Visa and IShares SP go up and down completely randomly.

Pair Corralation between Visa and IShares SP

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.84 times more return on investment than IShares SP. However, Visa Class A is 1.19 times less risky than IShares SP. It trades about 0.12 of its potential returns per unit of risk. iShares SP SmallCap is currently generating about -0.35 per unit of risk. If you would invest  30,830  in Visa Class A on October 8, 2024 and sell it today you would earn a total of  661.00  from holding Visa Class A or generate 2.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.74%
Values	Daily Returns

Visa Class A  vs.  iShares SP SmallCap

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.

iShares SP SmallCap

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP SmallCap are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, IShares SP is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Visa and IShares SP

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

The idea behind Visa Class A and iShares SP SmallCap 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 Transaction History module to view history of all your transactions and understand their impact on performance.