Correlation Between Visa and Invesco Mortgage

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

Diversification Opportunities for Visa and Invesco Mortgage

-0.34

Correlation Coefficient

Visa  Invesco Mortgage

Very good diversification

The 3 months correlation between Visa and Invesco is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Invesco Mortgage Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Mortgage Capital 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 Invesco Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Mortgage Capital has no effect on the direction of Visa i.e., Visa and Invesco Mortgage go up and down completely randomly.

Pair Corralation between Visa and Invesco Mortgage

Taking into account the 90-day investment horizon Visa Class A is expected to generate 1.39 times more return on investment than Invesco Mortgage. However, Visa is 1.39 times more volatile than Invesco Mortgage Capital. It trades about 0.16 of its potential returns per unit of risk. Invesco Mortgage Capital is currently generating about -0.01 per unit of risk. If you would invest  27,995  in Visa Class A on September 4, 2024 and sell it today you would earn a total of  3,670  from holding Visa Class A or generate 13.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Visa Class A  vs.  Invesco Mortgage Capital

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.

Invesco Mortgage Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Mortgage Capital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Invesco Mortgage is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Visa and Invesco Mortgage

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

The idea behind Visa Class A and Invesco Mortgage Capital 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.