Correlation Between Visa and Pacer Lunt

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

Diversification Opportunities for Visa and Pacer Lunt

0.83

Correlation Coefficient

Visa  Pacer Lunt

Very poor diversification

The 3 months correlation between Visa and Pacer is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Pacer Lunt Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Lunt Large 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 Pacer Lunt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Lunt Large has no effect on the direction of Visa i.e., Visa and Pacer Lunt go up and down completely randomly.

Pair Corralation between Visa and Pacer Lunt

Taking into account the 90-day investment horizon Visa Class A is expected to generate 1.15 times more return on investment than Pacer Lunt. However, Visa is 1.15 times more volatile than Pacer Lunt Large. It trades about 0.09 of its potential returns per unit of risk. Pacer Lunt Large is currently generating about 0.09 per unit of risk. If you would invest  20,311  in Visa Class A on September 14, 2024 and sell it today you would earn a total of  11,272  from holding Visa Class A or generate 55.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

Visa Class A  vs.  Pacer Lunt Large

Visa Class A

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pacer Lunt Large

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pacer Lunt Large are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Pacer Lunt is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Visa and Pacer Lunt

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

The idea behind Visa Class A and Pacer Lunt Large 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.