Correlation Between Visa and AirAsia X

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

Diversification Opportunities for Visa and AirAsia X

0.5

Correlation Coefficient

Visa  AirAsia X

Very weak diversification

The 3 months correlation between Visa and AirAsia is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and AirAsia X Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AirAsia X Bhd 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 AirAsia X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AirAsia X Bhd has no effect on the direction of Visa i.e., Visa and AirAsia X go up and down completely randomly.

Pair Corralation between Visa and AirAsia X

Taking into account the 90-day investment horizon Visa is expected to generate 4.36 times less return on investment than AirAsia X. But when comparing it to its historical volatility, Visa Class A is 2.42 times less risky than AirAsia X. It trades about 0.12 of its potential returns per unit of risk. AirAsia X Bhd is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  131.00  in AirAsia X Bhd on September 12, 2024 and sell it today you would earn a total of  61.00  from holding AirAsia X Bhd or generate 46.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.88%
Values	Daily Returns

Visa Class A  vs.  AirAsia X Bhd

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.

AirAsia X Bhd

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in AirAsia X Bhd are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, AirAsia X disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and AirAsia X

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

The idea behind Visa Class A and AirAsia X Bhd 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..