Correlation Between Visa and Octodec

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

Diversification Opportunities for Visa and Octodec

0.23

Correlation Coefficient

Visa  Octodec

Modest diversification

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

Pair Corralation between Visa and Octodec

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.79 times more return on investment than Octodec. However, Visa Class A is 1.26 times less risky than Octodec. It trades about 0.11 of its potential returns per unit of risk. Octodec is currently generating about 0.07 per unit of risk. If you would invest  26,930  in Visa Class A on October 3, 2024 and sell it today you would earn a total of  4,674  from holding Visa Class A or generate 17.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.4%
Values	Daily Returns

Visa Class A  vs.  Octodec

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.

Octodec

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Octodec has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Octodec is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Visa and Octodec

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

The idea behind Visa Class A and Octodec 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.