Correlation Between Visa and Kimbell Royalty

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

Diversification Opportunities for Visa and Kimbell Royalty

-0.52

Correlation Coefficient

Visa  Kimbell Royalty

Excellent diversification

The 3 months correlation between Visa and Kimbell is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Kimbell Royalty Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kimbell Royalty Partners 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 Kimbell Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kimbell Royalty Partners has no effect on the direction of Visa i.e., Visa and Kimbell Royalty go up and down completely randomly.

Pair Corralation between Visa and Kimbell Royalty

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.69 times more return on investment than Kimbell Royalty. However, Visa Class A is 1.44 times less risky than Kimbell Royalty. It trades about 0.33 of its potential returns per unit of risk. Kimbell Royalty Partners is currently generating about -0.07 per unit of risk. If you would invest  34,247  in Visa Class A on December 1, 2024 and sell it today you would earn a total of  2,024  from holding Visa Class A or generate 5.91% return on investment over 90 days.

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

Visa Class A  vs.  Kimbell Royalty Partners

Visa Class A

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 19 (%) 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.

Kimbell Royalty Partners

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kimbell Royalty Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Kimbell Royalty is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Visa and Kimbell Royalty

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

The idea behind Visa Class A and Kimbell Royalty Partners 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.