Correlation Between Visa and Farmaceutica

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

Diversification Opportunities for Visa and Farmaceutica

-0.84

Correlation Coefficient

Visa  Farmaceutica

Pay attention - limited upside

The 3 months correlation between Visa and Farmaceutica is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Farmaceutica R in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmaceutica R 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 Farmaceutica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmaceutica R has no effect on the direction of Visa i.e., Visa and Farmaceutica go up and down completely randomly.

Pair Corralation between Visa and Farmaceutica

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.51 times more return on investment than Farmaceutica. However, Visa Class A is 1.94 times less risky than Farmaceutica. It trades about 0.22 of its potential returns per unit of risk. Farmaceutica R is currently generating about -0.09 per unit of risk. If you would invest  27,442  in Visa Class A on September 28, 2024 and sell it today you would earn a total of  4,465  from holding Visa Class A or generate 16.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Visa Class A  vs.  Farmaceutica R

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.

Farmaceutica R

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Farmaceutica R has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Visa and Farmaceutica

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

The idea behind Visa Class A and Farmaceutica R 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.