Correlation Between Visa and Pimco Municipal

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

Diversification Opportunities for Visa and Pimco Municipal

0.69

Correlation Coefficient

Visa  Pimco Municipal

Poor diversification

The 3 months correlation between Visa and Pimco is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Pimco Municipal Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pimco Municipal Income 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 Pimco Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pimco Municipal Income has no effect on the direction of Visa i.e., Visa and Pimco Municipal go up and down completely randomly.

Pair Corralation between Visa and Pimco Municipal

Taking into account the 90-day investment horizon Visa Class A is expected to generate 1.55 times more return on investment than Pimco Municipal. However, Visa is 1.55 times more volatile than Pimco Municipal Income. It trades about 0.13 of its potential returns per unit of risk. Pimco Municipal Income is currently generating about 0.05 per unit of risk. If you would invest  30,926  in Visa Class A on December 18, 2024 and sell it today you would earn a total of  2,529  from holding Visa Class A or generate 8.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Visa Class A  vs.  Pimco Municipal Income

Visa Class A

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 10 (%) 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.

Pimco Municipal Income

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pimco Municipal Income are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. Despite quite persistent primary indicators, Pimco Municipal is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Visa and Pimco Municipal

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

The idea behind Visa Class A and Pimco Municipal Income 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.