Correlation Between Visa and Tax-exempt Bond

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

Diversification Opportunities for Visa and Tax-exempt Bond

0.29

Correlation Coefficient

Visa  Tax-exempt Bond

Modest diversification

The 3 months correlation between Visa and Tax-exempt is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Tax Exempt Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Exempt Bond 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 Tax-exempt Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tax Exempt Bond has no effect on the direction of Visa i.e., Visa and Tax-exempt Bond go up and down completely randomly.

Pair Corralation between Visa and Tax-exempt Bond

Taking into account the 90-day investment horizon Visa Class A is expected to under-perform the Tax-exempt Bond. In addition to that, Visa is 4.99 times more volatile than Tax Exempt Bond Fund. It trades about -0.12 of its total potential returns per unit of risk. Tax Exempt Bond Fund is currently generating about -0.31 per unit of volatility. If you would invest  2,199  in Tax Exempt Bond Fund on October 14, 2024 and sell it today you would lose (25.00) from holding Tax Exempt Bond Fund or give up 1.14% of portfolio value over 90 days.

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

Visa Class A  vs.  Tax Exempt Bond Fund

Visa Class A

Risk-Adjusted Performance

11 of 100

Good

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 February 2025.

Tax Exempt Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tax Exempt Bond Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Tax-exempt Bond 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 Tax-exempt Bond

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

The idea behind Visa Class A and Tax Exempt Bond Fund 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.