Correlation Between Visa and Merrill Lynch

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

Diversification Opportunities for Visa and Merrill Lynch

-0.23

Correlation Coefficient

Visa  Merrill Lynch

Very good diversification

The 3 months correlation between Visa and Merrill is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Merrill Lynch Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merrill Lynch Capital 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 Merrill Lynch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merrill Lynch Capital has no effect on the direction of Visa i.e., Visa and Merrill Lynch go up and down completely randomly.

Pair Corralation between Visa and Merrill Lynch

Taking into account the 90-day investment horizon Visa Class A is expected to generate 1.27 times more return on investment than Merrill Lynch. However, Visa is 1.27 times more volatile than Merrill Lynch Capital. It trades about 0.08 of its potential returns per unit of risk. Merrill Lynch Capital is currently generating about 0.04 per unit of risk. If you would invest  22,734  in Visa Class A on October 23, 2024 and sell it today you would earn a total of  9,518  from holding Visa Class A or generate 41.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Visa Class A  vs.  Merrill Lynch Capital

Visa Class A

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 15 (%) 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.

Merrill Lynch Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merrill Lynch Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Merrill Lynch is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Visa and Merrill Lynch

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

The idea behind Visa Class A and Merrill Lynch Capital 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.