Correlation Between Visa and High Income

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

Diversification Opportunities for Visa and High Income

0.22

Correlation Coefficient

Visa  High Income

Modest diversification

The 3 months correlation between Visa and High is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and High Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Income Fund 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 High Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Income Fund has no effect on the direction of Visa i.e., Visa and High Income go up and down completely randomly.

Pair Corralation between Visa and High Income

Taking into account the 90-day investment horizon Visa Class A is expected to generate 4.35 times more return on investment than High Income. However, Visa is 4.35 times more volatile than High Income Fund. It trades about 0.09 of its potential returns per unit of risk. High Income Fund is currently generating about 0.14 per unit of risk. If you would invest  23,701  in Visa Class A on September 24, 2024 and sell it today you would earn a total of  8,070  from holding Visa Class A or generate 34.05% return on investment over 90 days.

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

Visa Class A  vs.  High Income Fund

Visa Class A

Risk-Adjusted Performance

17 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 17 (%) 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.

High Income Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days High Income Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, High Income 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 High Income

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

The idea behind Visa Class A and High Income Fund 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.