Correlation Between Visa and Sp Smallcap

Can any of the company-specific risk be diversified away by investing in both Visa and Sp Smallcap 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 Sp Smallcap 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 Sp Smallcap 600, you can compare the effects of market volatilities on Visa and Sp Smallcap 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 Sp Smallcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Sp Smallcap.

Diversification Opportunities for Visa and Sp Smallcap

0.56

Correlation Coefficient

Visa  Sp Smallcap

Very weak diversification

The 3 months correlation between Visa and RYYCX is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Sp Smallcap 600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp Smallcap 600 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 Sp Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp Smallcap 600 has no effect on the direction of Visa i.e., Visa and Sp Smallcap go up and down completely randomly.

Pair Corralation between Visa and Sp Smallcap

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.76 times more return on investment than Sp Smallcap. However, Visa Class A is 1.31 times less risky than Sp Smallcap. It trades about 0.21 of its potential returns per unit of risk. Sp Smallcap 600 is currently generating about 0.08 per unit of risk. If you would invest  28,268  in Visa Class A on October 24, 2024 and sell it today you would earn a total of  4,076  from holding Visa Class A or generate 14.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Visa Class A  vs.  Sp Smallcap 600

Visa Class A

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 16 (%) 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.

Sp Smallcap 600

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sp Smallcap 600 are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Sp Smallcap may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Visa and Sp Smallcap

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

The idea behind Visa Class A and Sp Smallcap 600 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.