Correlation Between Visa and Companhia

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

Diversification Opportunities for Visa and Companhia

0.13

Correlation Coefficient

Visa  Companhia

Average diversification

The 3 months correlation between Visa and Companhia is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Companhia de Saneamento in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia de Saneamento 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 Companhia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia de Saneamento has no effect on the direction of Visa i.e., Visa and Companhia go up and down completely randomly.

Pair Corralation between Visa and Companhia

Taking into account the 90-day investment horizon Visa is expected to generate 1.41 times less return on investment than Companhia. But when comparing it to its historical volatility, Visa Class A is 1.97 times less risky than Companhia. It trades about 0.08 of its potential returns per unit of risk. Companhia de Saneamento is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  906.00  in Companhia de Saneamento on October 3, 2024 and sell it today you would earn a total of  474.00  from holding Companhia de Saneamento or generate 52.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.75%
Values	Daily Returns

Visa Class A  vs.  Companhia de Saneamento

Visa Class A

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 15 (%) 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.

Companhia de Saneamento

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Companhia de Saneamento has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's forward-looking indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Visa and Companhia

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

The idea behind Visa Class A and Companhia de Saneamento 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.