Correlation Between Visa and Occidental

Can any of the company-specific risk be diversified away by investing in both Visa and Occidental 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 Occidental 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 Occidental Petroleum 44, you can compare the effects of market volatilities on Visa and Occidental 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 Occidental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Occidental.

Diversification Opportunities for Visa and Occidental

-0.26

Correlation Coefficient

Visa  Occidental

Very good diversification

The 3 months correlation between Visa and Occidental is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Occidental Petroleum 44 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Occidental Petroleum 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 Occidental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Occidental Petroleum has no effect on the direction of Visa i.e., Visa and Occidental go up and down completely randomly.

Pair Corralation between Visa and Occidental

Taking into account the 90-day investment horizon Visa is expected to generate 2.63 times less return on investment than Occidental. But when comparing it to its historical volatility, Visa Class A is 1.83 times less risky than Occidental. It trades about 0.08 of its potential returns per unit of risk. Occidental Petroleum 44 is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  7,059  in Occidental Petroleum 44 on December 24, 2024 and sell it today you would earn a total of  875.00  from holding Occidental Petroleum 44 or generate 12.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Visa Class A  vs.  Occidental Petroleum 44

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 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.

Occidental Petroleum

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Occidental Petroleum 44 are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Occidental sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and Occidental

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

The idea behind Visa Class A and Occidental Petroleum 44 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.