Correlation Between Visa and Dongwon System

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

Diversification Opportunities for Visa and Dongwon System

0.04

Correlation Coefficient

Visa  Dongwon System

Significant diversification

The 3 months correlation between Visa and Dongwon is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Dongwon System in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dongwon System 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 Dongwon System. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dongwon System has no effect on the direction of Visa i.e., Visa and Dongwon System go up and down completely randomly.

Pair Corralation between Visa and Dongwon System

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.4 times more return on investment than Dongwon System. However, Visa Class A is 2.48 times less risky than Dongwon System. It trades about 0.16 of its potential returns per unit of risk. Dongwon System is currently generating about 0.05 per unit of risk. If you would invest  27,801  in Visa Class A on September 2, 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 Together
Strength	Insignificant
Accuracy	93.75%
Values	Daily Returns

Visa Class A  vs.  Dongwon System

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.

Dongwon System

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dongwon System are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Dongwon System may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Visa and Dongwon System

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

The idea behind Visa Class A and Dongwon System 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 Anywhere module to track or share privately all of your investments from the convenience of any device.