Correlation Between Visa and Largecap

Can any of the company-specific risk be diversified away by investing in both Visa and Largecap 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 Largecap 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 Largecap Sp 500, you can compare the effects of market volatilities on Visa and Largecap 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 Largecap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Largecap.

Diversification Opportunities for Visa and Largecap

0.14

Correlation Coefficient

Visa  Largecap

Average diversification

The 3 months correlation between Visa and Largecap is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Largecap Sp 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Largecap Sp 500 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 Largecap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Largecap Sp 500 has no effect on the direction of Visa i.e., Visa and Largecap go up and down completely randomly.

Pair Corralation between Visa and Largecap

Taking into account the 90-day investment horizon Visa Class A is expected to generate 1.1 times more return on investment than Largecap. However, Visa is 1.1 times more volatile than Largecap Sp 500. It trades about 0.15 of its potential returns per unit of risk. Largecap Sp 500 is currently generating about -0.06 per unit of risk. If you would invest  31,812  in Visa Class A on December 27, 2024 and sell it today you would earn a total of  3,174  from holding Visa Class A or generate 9.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Visa Class A  vs.  Largecap Sp 500

Visa Class A

Risk-Adjusted Performance

OK

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 April 2025.

Largecap Sp 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days Largecap Sp 500 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Largecap 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 Largecap

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

The idea behind Visa Class A and Largecap Sp 500 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.