Correlation Between Visa and Decibel Cannabis

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

Diversification Opportunities for Visa and Decibel Cannabis

0.42

Correlation Coefficient

Visa  Decibel Cannabis

Very weak diversification

The 3 months correlation between Visa and Decibel is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Decibel Cannabis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Decibel Cannabis 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 Decibel Cannabis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Decibel Cannabis has no effect on the direction of Visa i.e., Visa and Decibel Cannabis go up and down completely randomly.

Pair Corralation between Visa and Decibel Cannabis

Taking into account the 90-day investment horizon Visa is expected to generate 1.11 times less return on investment than Decibel Cannabis. But when comparing it to its historical volatility, Visa Class A is 6.14 times less risky than Decibel Cannabis. It trades about 0.16 of its potential returns per unit of risk. Decibel Cannabis is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  5.21  in Decibel Cannabis on September 4, 2024 and sell it today you would lose (0.22) from holding Decibel Cannabis or give up 4.22% of portfolio value over 90 days.

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

Visa Class A  vs.  Decibel Cannabis

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.

Decibel Cannabis

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Decibel Cannabis are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Decibel Cannabis reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and Decibel Cannabis

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

The idea behind Visa Class A and Decibel Cannabis 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.