Correlation Between Visa and AeroVironment

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

Diversification Opportunities for Visa and AeroVironment

-0.12

Correlation Coefficient

Visa  AeroVironment

Good diversification

The 3 months correlation between Visa and AeroVironment is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and AeroVironment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AeroVironment 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 AeroVironment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AeroVironment has no effect on the direction of Visa i.e., Visa and AeroVironment go up and down completely randomly.

Pair Corralation between Visa and AeroVironment

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.36 times more return on investment than AeroVironment. However, Visa Class A is 2.79 times less risky than AeroVironment. It trades about 0.1 of its potential returns per unit of risk. AeroVironment is currently generating about -0.16 per unit of risk. If you would invest  31,669  in Visa Class A on December 22, 2024 and sell it today you would earn a total of  1,897  from holding Visa Class A or generate 5.99% return on investment over 90 days.

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

Visa Class A  vs.  AeroVironment

Visa Class A

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 7 (%) 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 April 2025.

AeroVironment

Risk-Adjusted Performance

Very Weak

Over the last 90 days AeroVironment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Visa and AeroVironment

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

The idea behind Visa Class A and AeroVironment 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.

Check out your portfolio center.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.