Correlation Between Visa and Farmhouse

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

Diversification Opportunities for Visa and Farmhouse

-0.39

Correlation Coefficient

Visa  Farmhouse

Very good diversification

The 3 months correlation between Visa and Farmhouse is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Farmhouse in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmhouse 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 Farmhouse. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmhouse has no effect on the direction of Visa i.e., Visa and Farmhouse go up and down completely randomly.

Pair Corralation between Visa and Farmhouse

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.05 times more return on investment than Farmhouse. However, Visa Class A is 19.32 times less risky than Farmhouse. It trades about 0.22 of its potential returns per unit of risk. Farmhouse is currently generating about 0.01 per unit of risk. If you would invest  28,929  in Visa Class A on October 1, 2024 and sell it today you would earn a total of  2,937  from holding Visa Class A or generate 10.15% return on investment over 90 days.

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

Visa Class A  vs.  Farmhouse

Visa Class A

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 16 (%) 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.

Farmhouse

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Farmhouse has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical indicators, Farmhouse is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Visa and Farmhouse

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

The idea behind Visa Class A and Farmhouse 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.