Correlation Between Visa and Metro Bank

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

Diversification Opportunities for Visa and Metro Bank

0.87

Correlation Coefficient

Visa  Metro Bank

Very poor diversification

The 3 months correlation between Visa and Metro is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Metro Bank PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metro Bank PLC 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 Metro Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metro Bank PLC has no effect on the direction of Visa i.e., Visa and Metro Bank go up and down completely randomly.

Pair Corralation between Visa and Metro Bank

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.28 times more return on investment than Metro Bank. However, Visa Class A is 3.54 times less risky than Metro Bank. It trades about 0.08 of its potential returns per unit of risk. Metro Bank PLC is currently generating about 0.0 per unit of risk. If you would invest  22,602  in Visa Class A on October 24, 2024 and sell it today you would earn a total of  9,674  from holding Visa Class A or generate 42.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.4%
Values	Daily Returns

Visa Class A  vs.  Metro Bank PLC

Visa Class A

Risk-Adjusted Performance

16 of 100

Good

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.

Metro Bank PLC

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Metro Bank PLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Metro Bank unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and Metro Bank

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

The idea behind Visa Class A and Metro Bank PLC 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.