Correlation Between Visa and Great West

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

Diversification Opportunities for Visa and Great West

0.71

Correlation Coefficient

Visa  Great West

Poor diversification

The 3 months correlation between Visa and Great is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Great West Lifeco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great West Lifeco 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 Great West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great West Lifeco has no effect on the direction of Visa i.e., Visa and Great West go up and down completely randomly.

Pair Corralation between Visa and Great West

Taking into account the 90-day investment horizon Visa is expected to generate 2.36 times less return on investment than Great West. But when comparing it to its historical volatility, Visa Class A is 1.09 times less risky than Great West. It trades about 0.09 of its potential returns per unit of risk. Great West Lifeco is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,251  in Great West Lifeco on September 20, 2024 and sell it today you would earn a total of  780.00  from holding Great West Lifeco or generate 34.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	28.23%
Values	Daily Returns

Visa Class A  vs.  Great West Lifeco

Visa Class A

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 11 (%) 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.

Great West Lifeco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Great West Lifeco has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, Great West is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Visa and Great West

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

The idea behind Visa Class A and Great West Lifeco 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.