Correlation Between Visa and ArcBest

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

Diversification Opportunities for Visa and ArcBest

0.69

Correlation Coefficient

Visa  ArcBest

Poor diversification

The 3 months correlation between Visa and ArcBest is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and ArcBest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ArcBest 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 ArcBest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ArcBest has no effect on the direction of Visa i.e., Visa and ArcBest go up and down completely randomly.

Pair Corralation between Visa and ArcBest

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.34 times more return on investment than ArcBest. However, Visa Class A is 2.91 times less risky than ArcBest. It trades about 0.26 of its potential returns per unit of risk. ArcBest is currently generating about -0.03 per unit of risk. If you would invest  28,365  in Visa Class A on September 26, 2024 and sell it today you would earn a total of  3,700  from holding Visa Class A or generate 13.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.62%
Values	Daily Returns

Visa Class A  vs.  ArcBest

Visa Class A

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 19 (%) 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.

ArcBest

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ArcBest has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Visa and ArcBest

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

The idea behind Visa Class A and ArcBest 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.