Correlation Between Visa and OReilly Automotive

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

Diversification Opportunities for Visa and OReilly Automotive

0.88

Correlation Coefficient

Visa  OReilly Automotive

Very poor diversification

The 3 months correlation between Visa and OReilly is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and OReilly Automotive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OReilly Automotive 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 OReilly Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OReilly Automotive has no effect on the direction of Visa i.e., Visa and OReilly Automotive go up and down completely randomly.

Pair Corralation between Visa and OReilly Automotive

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.88 times more return on investment than OReilly Automotive. However, Visa Class A is 1.13 times less risky than OReilly Automotive. It trades about 0.13 of its potential returns per unit of risk. OReilly Automotive is currently generating about 0.04 per unit of risk. If you would invest  30,992  in Visa Class A on September 23, 2024 and sell it today you would earn a total of  779.00  from holding Visa Class A or generate 2.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Visa Class A  vs.  OReilly Automotive

Visa Class A

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 9 (%) 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.

OReilly Automotive

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in OReilly Automotive are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, OReilly Automotive reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and OReilly Automotive

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

The idea behind Visa Class A and OReilly Automotive 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.