Correlation Between Visa and Precious Metals

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

Diversification Opportunities for Visa and Precious Metals

0.75

Correlation Coefficient

Visa  Precious Metals

Poor diversification

The 3 months correlation between Visa and Precious is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Precious Metals Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Precious Metals 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 Precious Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Precious Metals has no effect on the direction of Visa i.e., Visa and Precious Metals go up and down completely randomly.

Pair Corralation between Visa and Precious Metals

Taking into account the 90-day investment horizon Visa is expected to generate 2.94 times less return on investment than Precious Metals. But when comparing it to its historical volatility, Visa Class A is 1.83 times less risky than Precious Metals. It trades about 0.13 of its potential returns per unit of risk. Precious Metals Fund is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  10,101  in Precious Metals Fund on December 18, 2024 and sell it today you would earn a total of  2,607  from holding Precious Metals Fund or generate 25.81% 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.  Precious Metals Fund

Visa Class A

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 10 (%) 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.

Precious Metals

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Precious Metals Fund are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Precious Metals showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and Precious Metals

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

The idea behind Visa Class A and Precious Metals 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.