Correlation Between Visa and CMO Public

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

Diversification Opportunities for Visa and CMO Public

-0.05

Correlation Coefficient

Visa  CMO Public

Good diversification

The 3 months correlation between Visa and CMO is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and CMO Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CMO Public 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 CMO Public. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CMO Public has no effect on the direction of Visa i.e., Visa and CMO Public go up and down completely randomly.

Pair Corralation between Visa and CMO Public

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.33 times more return on investment than CMO Public. However, Visa Class A is 3.07 times less risky than CMO Public. It trades about 0.14 of its potential returns per unit of risk. CMO Public is currently generating about -0.16 per unit of risk. If you would invest  30,825  in Visa Class A on September 15, 2024 and sell it today you would earn a total of  649.00  from holding Visa Class A or generate 2.11% 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.  CMO Public

Visa Class A

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 8 (%) 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.

CMO Public

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CMO Public are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, CMO Public disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and CMO Public

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

The idea behind Visa Class A and CMO Public 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.