Correlation Between Visa and Westport Fuel

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

Diversification Opportunities for Visa and Westport Fuel

0.49

Correlation Coefficient

Visa  Westport Fuel

Very weak diversification

The 3 months correlation between Visa and Westport is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Westport Fuel Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westport Fuel Systems 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 Westport Fuel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westport Fuel Systems has no effect on the direction of Visa i.e., Visa and Westport Fuel go up and down completely randomly.

Pair Corralation between Visa and Westport Fuel

Taking into account the 90-day investment horizon Visa is expected to generate 1.37 times less return on investment than Westport Fuel. But when comparing it to its historical volatility, Visa Class A is 3.2 times less risky than Westport Fuel. It trades about 0.15 of its potential returns per unit of risk. Westport Fuel Systems is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  543.00  in Westport Fuel Systems on December 27, 2024 and sell it today you would earn a total of  58.00  from holding Westport Fuel Systems or generate 10.68% return on investment over 90 days.

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

Visa Class A  vs.  Westport Fuel Systems

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 11 (%) 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.

Westport Fuel Systems

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Westport Fuel Systems are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Westport Fuel displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and Westport Fuel

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

The idea behind Visa Class A and Westport Fuel Systems 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.