Correlation Between Visa and Capital World

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

Diversification Opportunities for Visa and Capital World

0.76

Correlation Coefficient

Visa  Capital World

Poor diversification

The 3 months correlation between Visa and Capital is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Capital World Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Growth 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 Capital World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital World Growth has no effect on the direction of Visa i.e., Visa and Capital World go up and down completely randomly.

Pair Corralation between Visa and Capital World

Taking into account the 90-day investment horizon Visa Class A is expected to generate 1.27 times more return on investment than Capital World. However, Visa is 1.27 times more volatile than Capital World Growth. It trades about 0.15 of its potential returns per unit of risk. Capital World Growth is currently generating about 0.01 per unit of risk. If you would invest  31,812  in Visa Class A on December 27, 2024 and sell it today you would earn a total of  3,174  from holding Visa Class A or generate 9.98% 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.  Capital World Growth

Visa Class A

Risk-Adjusted Performance

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 April 2025.

Capital World Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Capital World Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Capital World 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 Capital World

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

The idea behind Visa Class A and Capital World Growth 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.