Correlation Between Visa and MTR

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

Diversification Opportunities for Visa and MTR

-0.31

Correlation Coefficient

Visa  MTR

Very good diversification

The 3 months correlation between Visa and MTR is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and MTR Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTR Limited 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 MTR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTR Limited has no effect on the direction of Visa i.e., Visa and MTR go up and down completely randomly.

Pair Corralation between Visa and MTR

Taking into account the 90-day investment horizon Visa is expected to generate 1.83 times less return on investment than MTR. But when comparing it to its historical volatility, Visa Class A is 1.66 times less risky than MTR. It trades about 0.1 of its potential returns per unit of risk. MTR Limited is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  248.00  in MTR Limited on September 23, 2024 and sell it today you would earn a total of  80.00  from holding MTR Limited or generate 32.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.69%
Values	Daily Returns

Visa Class A  vs.  MTR Limited

Visa Class A

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

MTR Limited

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MTR Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, MTR 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 MTR

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

The idea behind Visa Class A and MTR Limited 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.