Correlation Between Visa and ABCO Electronics

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

Diversification Opportunities for Visa and ABCO Electronics

-0.9

Correlation Coefficient

Visa  ABCO Electronics

Pay attention - limited upside

The 3 months correlation between Visa and ABCO is -0.9. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and ABCO Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABCO Electronics 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 ABCO Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABCO Electronics has no effect on the direction of Visa i.e., Visa and ABCO Electronics go up and down completely randomly.

Pair Corralation between Visa and ABCO Electronics

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.42 times more return on investment than ABCO Electronics. However, Visa Class A is 2.38 times less risky than ABCO Electronics. It trades about 0.12 of its potential returns per unit of risk. ABCO Electronics Co is currently generating about -0.14 per unit of risk. If you would invest  28,482  in Visa Class A on September 12, 2024 and sell it today you would earn a total of  2,756  from holding Visa Class A or generate 9.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	92.06%
Values	Daily Returns

Visa Class A  vs.  ABCO Electronics Co

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 weak basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ABCO Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABCO Electronics Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Visa and ABCO Electronics

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

The idea behind Visa Class A and ABCO Electronics Co 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.