Correlation Between Visa and Transphorm Technology

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

Diversification Opportunities for Visa and Transphorm Technology

0.0

Correlation Coefficient

Visa  Transphorm Technology

Pay attention - limited upside

The 3 months correlation between Visa and Transphorm is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Transphorm Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transphorm Technology 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 Transphorm Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transphorm Technology has no effect on the direction of Visa i.e., Visa and Transphorm Technology go up and down completely randomly.

Pair Corralation between Visa and Transphorm Technology

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.29 times more return on investment than Transphorm Technology. However, Visa Class A is 3.48 times less risky than Transphorm Technology. It trades about 0.07 of its potential returns per unit of risk. Transphorm Technology is currently generating about 0.02 per unit of risk. If you would invest  22,085  in Visa Class A on October 11, 2024 and sell it today you would earn a total of  9,175  from holding Visa Class A or generate 41.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	72.32%
Values	Daily Returns

Visa Class A  vs.  Transphorm Technology

Visa Class A

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 14 (%) 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.

Transphorm Technology

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Visa and Transphorm Technology

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

The idea behind Visa Class A and Transphorm Technology 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.