Correlation Between Plum Acquisition and Visa

Can any of the company-specific risk be diversified away by investing in both Plum Acquisition and Visa 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 Plum Acquisition and Visa into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Plum Acquisition Corp and Visa Class A, you can compare the effects of market volatilities on Plum Acquisition and Visa 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 Plum Acquisition with a short position of Visa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Plum Acquisition and Visa.

Diversification Opportunities for Plum Acquisition and Visa

0.88

Correlation Coefficient

Plum Acquisition  Visa

Very poor diversification

The 3 months correlation between Plum and Visa is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Plum Acquisition Corp and Visa Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Visa Class A and Plum Acquisition 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 Plum Acquisition Corp are associated (or correlated) with Visa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Visa Class A has no effect on the direction of Plum Acquisition i.e., Plum Acquisition and Visa go up and down completely randomly.

Pair Corralation between Plum Acquisition and Visa

Given the investment horizon of 90 days Plum Acquisition is expected to generate 12.18 times less return on investment than Visa. But when comparing it to its historical volatility, Plum Acquisition Corp is 3.32 times less risky than Visa. It trades about 0.04 of its potential returns per unit of risk. Visa Class A is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  30,739  in Visa Class A on September 21, 2024 and sell it today you would earn a total of  1,032  from holding Visa Class A or generate 3.36% return on investment over 90 days.

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

Plum Acquisition Corp  vs.  Visa Class A

Plum Acquisition Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Plum Acquisition Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady primary indicators, Plum Acquisition is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

Visa Class A

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Plum Acquisition and Visa

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

The idea behind Plum Acquisition Corp and Visa Class A 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.