Correlation Between Visa and Two Harbors

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

Diversification Opportunities for Visa and Two Harbors

0.87

Correlation Coefficient

Visa  Two Harbors

Very poor diversification

The 3 months correlation between Visa and Two is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Two Harbors Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Two Harbors Investments 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 Two Harbors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Two Harbors Investments has no effect on the direction of Visa i.e., Visa and Two Harbors go up and down completely randomly.

Pair Corralation between Visa and Two Harbors

Taking into account the 90-day investment horizon Visa is expected to generate 3.94 times less return on investment than Two Harbors. But when comparing it to its historical volatility, Visa Class A is 1.39 times less risky than Two Harbors. It trades about 0.08 of its potential returns per unit of risk. Two Harbors Investments is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,136  in Two Harbors Investments on December 25, 2024 and sell it today you would earn a total of  238.00  from holding Two Harbors Investments or generate 20.95% 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.  Two Harbors Investments

Visa Class A

Risk-Adjusted Performance

Modest

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.

Two Harbors Investments

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Two Harbors Investments are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Two Harbors displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and Two Harbors

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

The idea behind Visa Class A and Two Harbors Investments 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.