Correlation Between Visa and Guangdong Skychem

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

Diversification Opportunities for Visa and Guangdong Skychem

0.91

Correlation Coefficient

Visa  Guangdong Skychem

Almost no diversification

The 3 months correlation between Visa and Guangdong is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Guangdong Skychem Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Skychem 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 Guangdong Skychem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Skychem has no effect on the direction of Visa i.e., Visa and Guangdong Skychem go up and down completely randomly.

Pair Corralation between Visa and Guangdong Skychem

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.37 times more return on investment than Guangdong Skychem. However, Visa Class A is 2.69 times less risky than Guangdong Skychem. It trades about 0.08 of its potential returns per unit of risk. Guangdong Skychem Technology is currently generating about 0.02 per unit of risk. If you would invest  31,319  in Visa Class A on September 24, 2024 and sell it today you would earn a total of  452.00  from holding Visa Class A or generate 1.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.24%
Values	Daily Returns

Visa Class A  vs.  Guangdong Skychem Technology

Visa Class A

Risk-Adjusted Performance

17 of 100

OK

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.

Guangdong Skychem

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Skychem Technology are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangdong Skychem sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and Guangdong Skychem

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

The idea behind Visa Class A and Guangdong Skychem Technology 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.