Correlation Between Visa and Strengthening Dollar

Can any of the company-specific risk be diversified away by investing in both Visa and Strengthening Dollar 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 Strengthening Dollar 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 Strengthening Dollar 2x, you can compare the effects of market volatilities on Visa and Strengthening Dollar 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 Strengthening Dollar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Strengthening Dollar.

Diversification Opportunities for Visa and Strengthening Dollar

-0.45

Correlation Coefficient

Visa  Strengthening Dollar

Very good diversification

The 3 months correlation between Visa and Strengthening is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Strengthening Dollar 2x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strengthening Dollar 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 Strengthening Dollar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strengthening Dollar has no effect on the direction of Visa i.e., Visa and Strengthening Dollar go up and down completely randomly.

Pair Corralation between Visa and Strengthening Dollar

Taking into account the 90-day investment horizon Visa Class A is expected to generate 1.23 times more return on investment than Strengthening Dollar. However, Visa is 1.23 times more volatile than Strengthening Dollar 2x. It trades about 0.13 of its potential returns per unit of risk. Strengthening Dollar 2x is currently generating about -0.11 per unit of risk. If you would invest  31,478  in Visa Class A on December 29, 2024 and sell it today you would earn a total of  2,807  from holding Visa Class A or generate 8.92% return on investment over 90 days.

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

Visa Class A  vs.  Strengthening Dollar 2x

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 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.

Strengthening Dollar

Risk-Adjusted Performance

Very Weak

Over the last 90 days Strengthening Dollar 2x has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Visa and Strengthening Dollar

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

The idea behind Visa Class A and Strengthening Dollar 2x 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.