Correlation Between Visa and Prudential Muni

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

Diversification Opportunities for Visa and Prudential Muni

-0.14

Correlation Coefficient

Visa  Prudential Muni

Good diversification

The 3 months correlation between Visa and Prudential is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Prudential Muni High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Muni High 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 Prudential Muni. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Muni High has no effect on the direction of Visa i.e., Visa and Prudential Muni go up and down completely randomly.

Pair Corralation between Visa and Prudential Muni

Taking into account the 90-day investment horizon Visa Class A is expected to generate 3.75 times more return on investment than Prudential Muni. However, Visa is 3.75 times more volatile than Prudential Muni High. It trades about 0.07 of its potential returns per unit of risk. Prudential Muni High is currently generating about -0.47 per unit of risk. If you would invest  31,470  in Visa Class A on September 28, 2024 and sell it today you would earn a total of  396.00  from holding Visa Class A or generate 1.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Visa Class A  vs.  Prudential Muni High

Visa Class A

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 17 (%) 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.

Prudential Muni High

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prudential Muni High has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Prudential Muni is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Visa and Prudential Muni

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

The idea behind Visa Class A and Prudential Muni High 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.