Correlation Between Visa and Nufarm

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

Diversification Opportunities for Visa and Nufarm

0.08

Correlation Coefficient

Visa  Nufarm

Significant diversification

The 3 months correlation between Visa and Nufarm is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Nufarm Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nufarm 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 Nufarm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nufarm Limited has no effect on the direction of Visa i.e., Visa and Nufarm go up and down completely randomly.

Pair Corralation between Visa and Nufarm

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.52 times more return on investment than Nufarm. However, Visa Class A is 1.92 times less risky than Nufarm. It trades about 0.41 of its potential returns per unit of risk. Nufarm Limited is currently generating about 0.07 per unit of risk. If you would invest  31,387  in Visa Class A on December 2, 2024 and sell it today you would earn a total of  4,884  from holding Visa Class A or generate 15.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	93.02%
Values	Daily Returns

Visa Class A  vs.  Nufarm Limited

Visa Class A

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 19 (%) 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.

Nufarm Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nufarm Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Nufarm 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 Nufarm

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

The idea behind Visa Class A and Nufarm 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 Transaction History module to view history of all your transactions and understand their impact on performance.