Correlation Between Visa and Radico Khaitan

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

Diversification Opportunities for Visa and Radico Khaitan

0.73

Correlation Coefficient

Visa  Radico Khaitan

Poor diversification

The 3 months correlation between Visa and Radico is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Radico Khaitan Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Radico Khaitan 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 Radico Khaitan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Radico Khaitan has no effect on the direction of Visa i.e., Visa and Radico Khaitan go up and down completely randomly.

Pair Corralation between Visa and Radico Khaitan

Taking into account the 90-day investment horizon Visa is expected to generate 2.07 times less return on investment than Radico Khaitan. But when comparing it to its historical volatility, Visa Class A is 1.77 times less risky than Radico Khaitan. It trades about 0.11 of its potential returns per unit of risk. Radico Khaitan Limited is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  197,500  in Radico Khaitan Limited on September 9, 2024 and sell it today you would earn a total of  36,435  from holding Radico Khaitan Limited or generate 18.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.92%
Values	Daily Returns

Visa Class A  vs.  Radico Khaitan Limited

Visa Class A

Risk-Adjusted Performance

8 of 100

OK

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

Radico Khaitan

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Radico Khaitan Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating forward indicators, Radico Khaitan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and Radico Khaitan

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

The idea behind Visa Class A and Radico Khaitan Limited 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .