Correlation Between Visa and New Perspective

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

Diversification Opportunities for Visa and New Perspective

0.56

Correlation Coefficient

Visa  New Perspective

Very weak diversification

The 3 months correlation between Visa and New is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and New Perspective Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Perspective 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 New Perspective. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Perspective has no effect on the direction of Visa i.e., Visa and New Perspective go up and down completely randomly.

Pair Corralation between Visa and New Perspective

Taking into account the 90-day investment horizon Visa Class A is expected to under-perform the New Perspective. But the stock apears to be less risky and, when comparing its historical volatility, Visa Class A is 1.21 times less risky than New Perspective. The stock trades about -0.24 of its potential returns per unit of risk. The New Perspective Fund is currently generating about -0.17 of returns per unit of risk over similar time horizon. If you would invest  5,867  in New Perspective Fund on February 1, 2024 and sell it today you would lose (197.00) from holding New Perspective Fund or give up 3.36% of portfolio value over 90 days.

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

Visa Class A  vs.  New Perspective Fund

Visa Class A

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Visa Class A has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

New Perspective

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in New Perspective Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, New Perspective 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 New Perspective

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

The idea behind Visa Class A and New Perspective 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.