Correlation Between Visa and Sotherly Hotels

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

Diversification Opportunities for Visa and Sotherly Hotels

-0.08

Correlation Coefficient

Visa  Sotherly Hotels

Good diversification

The 3 months correlation between Visa and Sotherly is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Sotherly Hotels PR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sotherly Hotels PR 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 Sotherly Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sotherly Hotels PR has no effect on the direction of Visa i.e., Visa and Sotherly Hotels go up and down completely randomly.

Pair Corralation between Visa and Sotherly Hotels

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.59 times more return on investment than Sotherly Hotels. However, Visa Class A is 1.7 times less risky than Sotherly Hotels. It trades about 0.08 of its potential returns per unit of risk. Sotherly Hotels PR is currently generating about 0.0 per unit of risk. If you would invest  32,037  in Visa Class A on December 25, 2024 and sell it today you would earn a total of  1,529  from holding Visa Class A or generate 4.77% return on investment over 90 days.

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

Visa Class A  vs.  Sotherly Hotels PR

Visa Class A

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Visa is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Sotherly Hotels PR

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Visa and Sotherly Hotels

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

The idea behind Visa Class A and Sotherly Hotels PR 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.