Correlation Between Visa and Japan Steel

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

Diversification Opportunities for Visa and Japan Steel

0.62

Correlation Coefficient

Visa  Japan Steel

Poor diversification

The 3 months correlation between Visa and Japan is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and The Japan Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Steel 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 Japan Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Steel has no effect on the direction of Visa i.e., Visa and Japan Steel go up and down completely randomly.

Pair Corralation between Visa and Japan Steel

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.41 times more return on investment than Japan Steel. However, Visa Class A is 2.46 times less risky than Japan Steel. It trades about 0.05 of its potential returns per unit of risk. The Japan Steel is currently generating about -0.2 per unit of risk. If you would invest  31,722  in Visa Class A on October 23, 2024 and sell it today you would earn a total of  240.00  from holding Visa Class A or generate 0.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	88.89%
Values	Daily Returns

Visa Class A  vs.  The Japan Steel

Visa Class A

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 15 (%) 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.

Japan Steel

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Japan Steel are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Japan Steel reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and Japan Steel

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

The idea behind Visa Class A and The Japan Steel 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.