Correlation Between Visa and Plum Acquisition

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

Diversification Opportunities for Visa and Plum Acquisition

-0.35

Correlation Coefficient

Visa  Plum Acquisition

Very good diversification

The 3 months correlation between Visa and Plum is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Plum Acquisition I in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plum Acquisition I 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 Plum Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plum Acquisition I has no effect on the direction of Visa i.e., Visa and Plum Acquisition go up and down completely randomly.

Pair Corralation between Visa and Plum Acquisition

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.43 times more return on investment than Plum Acquisition. However, Visa Class A is 2.35 times less risky than Plum Acquisition. It trades about 0.09 of its potential returns per unit of risk. Plum Acquisition I is currently generating about 0.01 per unit of risk. If you would invest  20,485  in Visa Class A on September 19, 2024 and sell it today you would earn a total of  10,493  from holding Visa Class A or generate 51.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	86.9%
Values	Daily Returns

Visa Class A  vs.  Plum Acquisition I

Visa Class A

Risk-Adjusted Performance

8 of 100

Good

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 inconsistent basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Plum Acquisition I

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Plum Acquisition I has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, Plum Acquisition is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Visa and Plum Acquisition

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

The idea behind Visa Class A and Plum Acquisition I 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.