Correlation Between Visa and Inflation-linked

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

Diversification Opportunities for Visa and Inflation-linked

0.8

Correlation Coefficient

Visa  Inflation-linked

Very poor diversification

The 3 months correlation between Visa and Inflation-linked is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Inflation Linked Fixed Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inflation Linked Fixed 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 Inflation-linked. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inflation Linked Fixed has no effect on the direction of Visa i.e., Visa and Inflation-linked go up and down completely randomly.

Pair Corralation between Visa and Inflation-linked

Taking into account the 90-day investment horizon Visa Class A is expected to generate 4.2 times more return on investment than Inflation-linked. However, Visa is 4.2 times more volatile than Inflation Linked Fixed Income. It trades about 0.15 of its potential returns per unit of risk. Inflation Linked Fixed Income is currently generating about 0.23 per unit of risk. If you would invest  31,812  in Visa Class A on December 27, 2024 and sell it today you would earn a total of  3,174  from holding Visa Class A or generate 9.98% return on investment over 90 days.

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

Visa Class A  vs.  Inflation Linked Fixed Income

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 11 (%) 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 April 2025.

Inflation Linked Fixed

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Inflation Linked Fixed Income are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Inflation-linked is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Visa and Inflation-linked

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

The idea behind Visa Class A and Inflation Linked Fixed Income 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.