Correlation Between Visa and PGIM Short

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

Diversification Opportunities for Visa and PGIM Short

0.48

Correlation Coefficient

Visa  PGIM Short

Very weak diversification

The 3 months correlation between Visa and PGIM is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and PGIM Short Duration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PGIM Short Duration 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 PGIM Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PGIM Short Duration has no effect on the direction of Visa i.e., Visa and PGIM Short go up and down completely randomly.

Pair Corralation between Visa and PGIM Short

Taking into account the 90-day investment horizon Visa Class A is expected to generate 2.69 times more return on investment than PGIM Short. However, Visa is 2.69 times more volatile than PGIM Short Duration. It trades about 0.17 of its potential returns per unit of risk. PGIM Short Duration is currently generating about 0.18 per unit of risk. If you would invest  27,801  in Visa Class A on September 3, 2024 and sell it today you would earn a total of  3,864  from holding Visa Class A or generate 13.9% return on investment over 90 days.

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

Visa Class A  vs.  PGIM Short Duration

Visa Class A

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 13 (%) 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.

PGIM Short Duration

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PGIM Short Duration are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, PGIM Short is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Visa and PGIM Short

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

The idea behind Visa Class A and PGIM Short Duration 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.