Correlation Between Visa and Inverse Russell

Can any of the company-specific risk be diversified away by investing in both Visa and Inverse Russell 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 Inverse Russell 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 Inverse Russell 2000, you can compare the effects of market volatilities on Visa and Inverse Russell 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 Inverse Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Inverse Russell.

Diversification Opportunities for Visa and Inverse Russell

0.33

Correlation Coefficient

Visa  Inverse Russell

Weak diversification

The 3 months correlation between Visa and Inverse is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Inverse Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Russell 2000 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 Inverse Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Russell 2000 has no effect on the direction of Visa i.e., Visa and Inverse Russell go up and down completely randomly.

Pair Corralation between Visa and Inverse Russell

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.82 times more return on investment than Inverse Russell. However, Visa Class A is 1.21 times less risky than Inverse Russell. It trades about 0.24 of its potential returns per unit of risk. Inverse Russell 2000 is currently generating about 0.05 per unit of risk. If you would invest  31,133  in Visa Class A on November 19, 2024 and sell it today you would earn a total of  4,248  from holding Visa Class A or generate 13.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Visa Class A  vs.  Inverse Russell 2000

Visa Class A

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 18 (%) 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.

Inverse Russell 2000

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Russell 2000 are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Inverse Russell 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 Inverse Russell

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

The idea behind Visa Class A and Inverse Russell 2000 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.