Correlation Between Visa and Silicon Laboratories

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

Diversification Opportunities for Visa and Silicon Laboratories

-0.61

Correlation Coefficient

Visa  Silicon Laboratories

Excellent diversification

The 3 months correlation between Visa and Silicon is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Silicon Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silicon Laboratories 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 Silicon Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silicon Laboratories has no effect on the direction of Visa i.e., Visa and Silicon Laboratories go up and down completely randomly.

Pair Corralation between Visa and Silicon Laboratories

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.38 times more return on investment than Silicon Laboratories. However, Visa Class A is 2.63 times less risky than Silicon Laboratories. It trades about 0.28 of its potential returns per unit of risk. Silicon Laboratories is currently generating about -0.03 per unit of risk. If you would invest  27,442  in Visa Class A on August 30, 2024 and sell it today you would earn a total of  4,028  from holding Visa Class A or generate 14.68% return on investment over 90 days.

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

Visa Class A  vs.  Silicon Laboratories

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.

Silicon Laboratories

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Silicon Laboratories has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Silicon Laboratories is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Visa and Silicon Laboratories

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

The idea behind Visa Class A and Silicon Laboratories 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.