Correlation Between Visa and Companhia Paranaense

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

Diversification Opportunities for Visa and Companhia Paranaense

-0.61

Correlation Coefficient

Visa  Companhia Paranaense

Excellent diversification

The 3 months correlation between Visa and Companhia is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Companhia Paranaense de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia Paranaense 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 Companhia Paranaense. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia Paranaense has no effect on the direction of Visa i.e., Visa and Companhia Paranaense go up and down completely randomly.

Pair Corralation between Visa and Companhia Paranaense

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.95 times more return on investment than Companhia Paranaense. However, Visa Class A is 1.05 times less risky than Companhia Paranaense. It trades about 0.11 of its potential returns per unit of risk. Companhia Paranaense de is currently generating about 0.04 per unit of risk. If you would invest  26,932  in Visa Class A on August 31, 2024 and sell it today you would earn a total of  4,538  from holding Visa Class A or generate 16.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.21%
Values	Daily Returns

Visa Class A  vs.  Companhia Paranaense de

Visa Class A

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 12 (%) 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.

Companhia Paranaense

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Companhia Paranaense de has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Preferred Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Visa and Companhia Paranaense

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

The idea behind Visa Class A and Companhia Paranaense de 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.