Correlation Between Visa and Allegheny Technologies

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

Diversification Opportunities for Visa and Allegheny Technologies

-0.49

Correlation Coefficient

Visa  Allegheny Technologies

Very good diversification

The 3 months correlation between Visa and Allegheny is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Allegheny Technologies Incorpo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegheny Technologies 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 Allegheny Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegheny Technologies has no effect on the direction of Visa i.e., Visa and Allegheny Technologies go up and down completely randomly.

Pair Corralation between Visa and Allegheny Technologies

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.87 times more return on investment than Allegheny Technologies. However, Visa Class A is 1.15 times less risky than Allegheny Technologies. It trades about 0.07 of its potential returns per unit of risk. Allegheny Technologies Incorporated is currently generating about -0.34 per unit of risk. If you would invest  31,319  in Visa Class A on September 26, 2024 and sell it today you would earn a total of  403.00  from holding Visa Class A or generate 1.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Visa Class A  vs.  Allegheny Technologies Incorpo

Visa Class A

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 18 (%) 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.

Allegheny Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Allegheny Technologies Incorporated 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 Allegheny Technologies

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

The idea behind Visa Class A and Allegheny Technologies Incorporated 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.

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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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.