Correlation Between Visa and Merchants National

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

Diversification Opportunities for Visa and Merchants National

-0.41

Correlation Coefficient

Visa  Merchants National

Very good diversification

The 3 months correlation between Visa and Merchants is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Merchants National Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants National 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 Merchants National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merchants National has no effect on the direction of Visa i.e., Visa and Merchants National go up and down completely randomly.

Pair Corralation between Visa and Merchants National

Taking into account the 90-day investment horizon Visa is expected to generate 6.61 times less return on investment than Merchants National. But when comparing it to its historical volatility, Visa Class A is 1.48 times less risky than Merchants National. It trades about 0.06 of its potential returns per unit of risk. Merchants National Properties is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  175,000  in Merchants National Properties on October 26, 2024 and sell it today you would earn a total of  10,292  from holding Merchants National Properties or generate 5.88% 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.  Merchants National Properties

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.

Merchants National

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Merchants National Properties are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Merchants National may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Visa and Merchants National

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

The idea behind Visa Class A and Merchants National Properties 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.