Correlation Between Visa and IShares Edge

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

Diversification Opportunities for Visa and IShares Edge

-0.05

Correlation Coefficient

Visa  IShares Edge

Good diversification

The 3 months correlation between Visa and IShares is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and iShares Edge MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Edge MSCI 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 IShares Edge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Edge MSCI has no effect on the direction of Visa i.e., Visa and IShares Edge go up and down completely randomly.

Pair Corralation between Visa and IShares Edge

Taking into account the 90-day investment horizon Visa Class A is expected to generate 1.07 times more return on investment than IShares Edge. However, Visa is 1.07 times more volatile than iShares Edge MSCI. It trades about 0.12 of its potential returns per unit of risk. iShares Edge MSCI is currently generating about 0.03 per unit of risk. If you would invest  26,718  in Visa Class A on September 30, 2024 and sell it today you would earn a total of  5,148  from holding Visa Class A or generate 19.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.21%
Values	Daily Returns

Visa Class A  vs.  iShares Edge MSCI

Visa Class A

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 17 (%) 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.

iShares Edge MSCI

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Edge MSCI are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, IShares Edge is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Visa and IShares Edge

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

The idea behind Visa Class A and iShares Edge MSCI 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.