Correlation Between Visa and Capital Point

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

Diversification Opportunities for Visa and Capital Point

0.22

Correlation Coefficient

Visa  Capital Point

Modest diversification

The 3 months correlation between Visa and Capital is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Capital Point in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Point 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 Capital Point. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Point has no effect on the direction of Visa i.e., Visa and Capital Point go up and down completely randomly.

Pair Corralation between Visa and Capital Point

Taking into account the 90-day investment horizon Visa is expected to generate 11.14 times less return on investment than Capital Point. But when comparing it to its historical volatility, Visa Class A is 2.6 times less risky than Capital Point. It trades about 0.12 of its potential returns per unit of risk. Capital Point is currently generating about 0.51 of returns per unit of risk over similar time horizon. If you would invest  4,860  in Capital Point on September 25, 2024 and sell it today you would earn a total of  1,240  from holding Capital Point or generate 25.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	85.71%
Values	Daily Returns

Visa Class A  vs.  Capital Point

Visa Class A

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 20 (%) 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.

Capital Point

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Point are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Capital Point sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and Capital Point

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

The idea behind Visa Class A and Capital Point 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..