Correlation Between Visa and Cheniere Energy

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

Diversification Opportunities for Visa and Cheniere Energy

0.93

Correlation Coefficient

Visa  Cheniere Energy

Almost no diversification

The 3 months correlation between Visa and Cheniere is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Cheniere Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheniere Energy 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 Cheniere Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheniere Energy has no effect on the direction of Visa i.e., Visa and Cheniere Energy go up and down completely randomly.

Pair Corralation between Visa and Cheniere Energy

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.81 times more return on investment than Cheniere Energy. However, Visa Class A is 1.23 times less risky than Cheniere Energy. It trades about 0.08 of its potential returns per unit of risk. Cheniere Energy is currently generating about -0.19 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	100.0%
Values	Daily Returns

Visa Class A  vs.  Cheniere Energy

Visa Class A

Risk-Adjusted Performance

17 of 100

Solid

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.

Cheniere Energy

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cheniere Energy are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cheniere Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and Cheniere Energy

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

The idea behind Visa Class A and Cheniere Energy 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.