Correlation Between Visa and STRAX

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

Diversification Opportunities for Visa and STRAX

0.71

Correlation Coefficient

Visa  STRAX

Poor diversification

The 3 months correlation between Visa and STRAX is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and STRAX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STRAX 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 STRAX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STRAX has no effect on the direction of Visa i.e., Visa and STRAX go up and down completely randomly.

Pair Corralation between Visa and STRAX

Taking into account the 90-day investment horizon Visa is expected to generate 6.14 times less return on investment than STRAX. But when comparing it to its historical volatility, Visa Class A is 4.35 times less risky than STRAX. It trades about 0.11 of its potential returns per unit of risk. STRAX is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4.52  in STRAX on September 14, 2024 and sell it today you would earn a total of  2.50  from holding STRAX or generate 55.31% return on investment over 90 days.

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

Visa Class A  vs.  STRAX

Visa Class A

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

STRAX

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in STRAX are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, STRAX exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and STRAX

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

The idea behind Visa Class A and STRAX 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.