Correlation Between Visa and KAR Auction

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

Diversification Opportunities for Visa and KAR Auction

0.66

Correlation Coefficient

Visa  KAR Auction

Poor diversification

The 3 months correlation between Visa and KAR is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and KAR Auction Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KAR Auction Services 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 KAR Auction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KAR Auction Services has no effect on the direction of Visa i.e., Visa and KAR Auction go up and down completely randomly.

Pair Corralation between Visa and KAR Auction

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.6 times more return on investment than KAR Auction. However, Visa Class A is 1.65 times less risky than KAR Auction. It trades about 0.12 of its potential returns per unit of risk. KAR Auction Services is currently generating about 0.04 per unit of risk. If you would invest  32,037  in Visa Class A on December 25, 2024 and sell it today you would earn a total of  2,425  from holding Visa Class A or generate 7.57% return on investment over 90 days.

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

Visa Class A  vs.  KAR Auction Services

Visa Class A

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 9 (%) 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.

KAR Auction Services

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KAR Auction Services are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, KAR Auction is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Visa and KAR Auction

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

The idea behind Visa Class A and KAR Auction Services 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.