Correlation Between Visa and Sonic Foundry

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

Diversification Opportunities for Visa and Sonic Foundry

0.38

Correlation Coefficient

Visa  Sonic Foundry

Weak diversification

The 3 months correlation between Visa and Sonic is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Sonic Foundry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonic Foundry 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 Sonic Foundry. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonic Foundry has no effect on the direction of Visa i.e., Visa and Sonic Foundry go up and down completely randomly.

Pair Corralation between Visa and Sonic Foundry

If you would invest  25,380  in Visa Class A on October 3, 2024 and sell it today you would earn a total of  6,224  from holding Visa Class A or generate 24.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	0.37%
Values	Daily Returns

Visa Class A  vs.  Sonic Foundry

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.

Sonic Foundry

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sonic Foundry has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Sonic Foundry is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Visa and Sonic Foundry

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

The idea behind Visa Class A and Sonic Foundry 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.