Correlation Between Visa and Xtrackers

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

Diversification Opportunities for Visa and Xtrackers

0.92

Correlation Coefficient

Visa  Xtrackers

Almost no diversification

The 3 months correlation between Visa and Xtrackers is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Xtrackers SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers SP 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 Xtrackers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers SP has no effect on the direction of Visa i.e., Visa and Xtrackers go up and down completely randomly.

Pair Corralation between Visa and Xtrackers

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.74 times more return on investment than Xtrackers. However, Visa Class A is 1.36 times less risky than Xtrackers. It trades about 0.23 of its potential returns per unit of risk. Xtrackers SP is currently generating about 0.15 per unit of risk. If you would invest  27,117  in Visa Class A on September 26, 2024 and sell it today you would earn a total of  4,605  from holding Visa Class A or generate 16.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Visa Class A  vs.  Xtrackers SP

Visa Class A

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 18 (%) 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.

Xtrackers SP

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers SP are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Xtrackers reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and Xtrackers

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

The idea behind Visa Class A and Xtrackers SP 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.