Correlation Between Visa and Pakistan Cables

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

Diversification Opportunities for Visa and Pakistan Cables

0.32

Correlation Coefficient

Visa  Pakistan Cables

Weak diversification

The 3 months correlation between Visa and Pakistan is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Pakistan Cables in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Cables 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 Pakistan Cables. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Cables has no effect on the direction of Visa i.e., Visa and Pakistan Cables go up and down completely randomly.

Pair Corralation between Visa and Pakistan Cables

Taking into account the 90-day investment horizon Visa Class A is expected to under-perform the Pakistan Cables. But the stock apears to be less risky and, when comparing its historical volatility, Visa Class A is 4.88 times less risky than Pakistan Cables. The stock trades about -0.14 of its potential returns per unit of risk. The Pakistan Cables is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  17,231  in Pakistan Cables on October 15, 2024 and sell it today you would earn a total of  3,250  from holding Pakistan Cables or generate 18.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

Visa Class A  vs.  Pakistan Cables

Visa Class A

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 11 (%) 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 February 2025.

Pakistan Cables

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pakistan Cables are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Pakistan Cables sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and Pakistan Cables

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

The idea behind Visa Class A and Pakistan Cables 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.