Correlation Between Visa and Waste

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

Diversification Opportunities for Visa and Waste

-0.18

Correlation Coefficient

Visa  Waste

Good diversification

The 3 months correlation between Visa and Waste is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Waste Pro USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waste Pro USA 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 Waste. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waste Pro USA has no effect on the direction of Visa i.e., Visa and Waste go up and down completely randomly.

Pair Corralation between Visa and Waste

Taking into account the 90-day investment horizon Visa Class A is expected to generate 2.23 times more return on investment than Waste. However, Visa is 2.23 times more volatile than Waste Pro USA. It trades about 0.16 of its potential returns per unit of risk. Waste Pro USA is currently generating about -0.13 per unit of risk. If you would invest  27,801  in Visa Class A on September 3, 2024 and sell it today you would earn a total of  3,707  from holding Visa Class A or generate 13.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	59.38%
Values	Daily Returns

Visa Class A  vs.  Waste Pro USA

Visa Class A

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 12 (%) 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.

Waste Pro USA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Waste Pro USA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Waste 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 Waste

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

The idea behind Visa Class A and Waste Pro USA 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.