Correlation Between Visa and Arconic

Can any of the company-specific risk be diversified away by investing in both Visa and Arconic 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 Arconic 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 Arconic 59 percent, you can compare the effects of market volatilities on Visa and Arconic 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 Arconic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Arconic.

Diversification Opportunities for Visa and Arconic

0.33

Correlation Coefficient

Visa  Arconic

Weak diversification

The 3 months correlation between Visa and Arconic is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Arconic 59 percent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arconic 59 percent 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 Arconic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arconic 59 percent has no effect on the direction of Visa i.e., Visa and Arconic go up and down completely randomly.

Pair Corralation between Visa and Arconic

Taking into account the 90-day investment horizon Visa Class A is expected to generate 3.61 times more return on investment than Arconic. However, Visa is 3.61 times more volatile than Arconic 59 percent. It trades about 0.13 of its potential returns per unit of risk. Arconic 59 percent is currently generating about 0.03 per unit of risk. If you would invest  31,478  in Visa Class A on December 29, 2024 and sell it today you would earn a total of  2,807  from holding Visa Class A or generate 8.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

Visa Class A  vs.  Arconic 59 percent

Visa Class A

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 10 (%) 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.

Arconic 59 percent

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Arconic 59 percent are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Arconic is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Visa and Arconic

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

The idea behind Visa Class A and Arconic 59 percent 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..