Correlation Between Visa and LAVA Medtech

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

Diversification Opportunities for Visa and LAVA Medtech

0.84

Correlation Coefficient

Visa  LAVA Medtech

Very poor diversification

The 3 months correlation between Visa and LAVA is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and LAVA Medtech Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LAVA Medtech Acquisition 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 LAVA Medtech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LAVA Medtech Acquisition has no effect on the direction of Visa i.e., Visa and LAVA Medtech go up and down completely randomly.

Pair Corralation between Visa and LAVA Medtech

Taking into account the 90-day investment horizon Visa Class A is expected to generate 8.77 times more return on investment than LAVA Medtech. However, Visa is 8.77 times more volatile than LAVA Medtech Acquisition. It trades about 0.08 of its potential returns per unit of risk. LAVA Medtech Acquisition is currently generating about 0.11 per unit of risk. If you would invest  21,956  in Visa Class A on October 7, 2024 and sell it today you would earn a total of  9,535  from holding Visa Class A or generate 43.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	16.73%
Values	Daily Returns

Visa Class A  vs.  LAVA Medtech Acquisition

Visa Class A

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 16 (%) 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.

LAVA Medtech Acquisition

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LAVA Medtech Acquisition has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, LAVA Medtech is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Visa and LAVA Medtech

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

The idea behind Visa Class A and LAVA Medtech Acquisition 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.