Correlation Between Visa and Small Cap

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

Diversification Opportunities for Visa and Small Cap

0.79
  Correlation Coefficient

Poor diversification

The 3 months correlation between Visa and Small is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Growth 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 Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Growth has no effect on the direction of Visa i.e., Visa and Small Cap go up and down completely randomly.

Pair Corralation between Visa and Small Cap

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.96 times more return on investment than Small Cap. However, Visa Class A is 1.04 times less risky than Small Cap. It trades about 0.26 of its potential returns per unit of risk. Small Cap Growth is currently generating about 0.04 per unit of risk. If you would invest  26,911  in Visa Class A on September 25, 2024 and sell it today you would earn a total of  5,154  from holding Visa Class A or generate 19.15% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Visa Class A  vs.  Small Cap Growth

 Performance 
       Timeline  
Visa Class A 

Risk-Adjusted Performance

20 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 20 (%) 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.
Small Cap Growth 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Growth are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Small Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Visa and Small Cap Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Visa and Small Cap

The main advantage of trading using opposite Visa and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.
The idea behind Visa Class A and Small Cap Growth 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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