Correlation Between Visa and Balfour Beatty

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

Diversification Opportunities for Visa and Balfour Beatty

-0.35

Correlation Coefficient

Visa  Balfour Beatty

Very good diversification

The 3 months correlation between Visa and Balfour is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Balfour Beatty plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balfour Beatty plc 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 Balfour Beatty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balfour Beatty plc has no effect on the direction of Visa i.e., Visa and Balfour Beatty go up and down completely randomly.

Pair Corralation between Visa and Balfour Beatty

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.47 times more return on investment than Balfour Beatty. However, Visa Class A is 2.15 times less risky than Balfour Beatty. It trades about 0.12 of its potential returns per unit of risk. Balfour Beatty plc is currently generating about 0.0 per unit of risk. If you would invest  28,793  in Visa Class A on September 18, 2024 and sell it today you would earn a total of  2,796  from holding Visa Class A or generate 9.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Visa Class A  vs.  Balfour Beatty plc

Visa Class A

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Balfour Beatty plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Balfour Beatty plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, Balfour Beatty is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Visa and Balfour Beatty

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

The idea behind Visa Class A and Balfour Beatty plc 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.