Correlation Between Visa and Medical Packaging

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

Diversification Opportunities for Visa and Medical Packaging

-0.29
  Correlation Coefficient

Very good diversification

The 3 months correlation between Visa and Medical is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Medical Packaging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medical Packaging 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 Medical Packaging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medical Packaging has no effect on the direction of Visa i.e., Visa and Medical Packaging go up and down completely randomly.

Pair Corralation between Visa and Medical Packaging

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.71 times more return on investment than Medical Packaging. However, Visa Class A is 1.41 times less risky than Medical Packaging. It trades about 0.15 of its potential returns per unit of risk. Medical Packaging is currently generating about -0.06 per unit of risk. If you would invest  31,812  in Visa Class A on December 27, 2024 and sell it today you would earn a total of  3,174  from holding Visa Class A or generate 9.98% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy81.97%
ValuesDaily Returns

Visa Class A  vs.  Medical Packaging

 Performance 
       Timeline  
Visa Class A 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 11 (%) 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.
Medical Packaging 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Medical Packaging has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Medical Packaging is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Visa and Medical Packaging Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Visa and Medical Packaging

The main advantage of trading using opposite Visa and Medical Packaging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa position performs unexpectedly, Medical Packaging 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 Medical Packaging will offset losses from the drop in Medical Packaging's long position.
The idea behind Visa Class A and Medical Packaging 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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