Correlation Between Visa and GULF ENERGY

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

Diversification Opportunities for Visa and GULF ENERGY

0.59

Correlation Coefficient

Visa  GULF ENERGY

Very weak diversification

The 3 months correlation between Visa and GULF is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and GULF ENERGY DEVELOPMENT NVDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GULF ENERGY DEVELOPMENT 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 GULF ENERGY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GULF ENERGY DEVELOPMENT has no effect on the direction of Visa i.e., Visa and GULF ENERGY go up and down completely randomly.

Pair Corralation between Visa and GULF ENERGY

Taking into account the 90-day investment horizon Visa is expected to generate 11.51 times less return on investment than GULF ENERGY. But when comparing it to its historical volatility, Visa Class A is 7.05 times less risky than GULF ENERGY. It trades about 0.12 of its potential returns per unit of risk. GULF ENERGY DEVELOPMENT NVDR is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  4,750  in GULF ENERGY DEVELOPMENT NVDR on September 25, 2024 and sell it today you would earn a total of  1,225  from holding GULF ENERGY DEVELOPMENT NVDR or generate 25.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Visa Class A  vs.  GULF ENERGY DEVELOPMENT NVDR

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.

GULF ENERGY DEVELOPMENT

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GULF ENERGY DEVELOPMENT NVDR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, GULF ENERGY sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and GULF ENERGY

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

The idea behind Visa Class A and GULF ENERGY DEVELOPMENT NVDR 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.