Correlation Between Visa and Paychex

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

Diversification Opportunities for Visa and Paychex

0.84

Correlation Coefficient

Visa  Paychex

Very poor diversification

The 3 months correlation between Visa and Paychex is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Paychex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paychex 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 Paychex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paychex has no effect on the direction of Visa i.e., Visa and Paychex go up and down completely randomly.

Pair Corralation between Visa and Paychex

Taking into account the 90-day investment horizon Visa is expected to generate 1.26 times less return on investment than Paychex. But when comparing it to its historical volatility, Visa Class A is 1.07 times less risky than Paychex. It trades about 0.11 of its potential returns per unit of risk. Paychex is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  12,076  in Paychex on September 17, 2024 and sell it today you would earn a total of  1,326  from holding Paychex or generate 10.98% return on investment over 90 days.

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

Visa Class A  vs.  Paychex

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.

Paychex

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Paychex are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Paychex may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Visa and Paychex

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

The idea behind Visa Class A and Paychex 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.