Correlation Between Visa and DG Innovate

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

Diversification Opportunities for Visa and DG Innovate

0.73

Correlation Coefficient

Visa  DG Innovate

Poor diversification

The 3 months correlation between Visa and DGI is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and DG Innovate PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DG Innovate PLC 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 DG Innovate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DG Innovate PLC has no effect on the direction of Visa i.e., Visa and DG Innovate go up and down completely randomly.

Pair Corralation between Visa and DG Innovate

Taking into account the 90-day investment horizon Visa is expected to generate 2.87 times less return on investment than DG Innovate. But when comparing it to its historical volatility, Visa Class A is 4.72 times less risky than DG Innovate. It trades about 0.1 of its potential returns per unit of risk. DG Innovate PLC is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  7.25  in DG Innovate PLC on September 17, 2024 and sell it today you would earn a total of  1.00  from holding DG Innovate PLC or generate 13.79% return on investment over 90 days.

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

Visa Class A  vs.  DG Innovate PLC

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.

DG Innovate PLC

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in DG Innovate PLC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, DG Innovate exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and DG Innovate

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

The idea behind Visa Class A and DG Innovate PLC 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.