Correlation Between Visa and DWS Municipal

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

Diversification Opportunities for Visa and DWS Municipal

0.72

Correlation Coefficient

Visa  DWS Municipal

Poor diversification

The 3 months correlation between Visa and DWS is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and DWS Municipal Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DWS Municipal Income 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 DWS Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DWS Municipal Income has no effect on the direction of Visa i.e., Visa and DWS Municipal go up and down completely randomly.

Pair Corralation between Visa and DWS Municipal

Taking into account the 90-day investment horizon Visa Class A is expected to generate 2.18 times more return on investment than DWS Municipal. However, Visa is 2.18 times more volatile than DWS Municipal Income. It trades about 0.08 of its potential returns per unit of risk. DWS Municipal Income is currently generating about 0.04 per unit of risk. If you would invest  32,011  in Visa Class A on December 24, 2024 and sell it today you would earn a total of  1,555  from holding Visa Class A or generate 4.86% 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.  DWS Municipal Income

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 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Visa is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

DWS Municipal Income

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DWS Municipal Income are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, DWS Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Visa and DWS Municipal

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

The idea behind Visa Class A and DWS Municipal Income 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.