Correlation Between Visa and Prudential Plc

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

Diversification Opportunities for Visa and Prudential Plc

-0.37

Correlation Coefficient

Visa  Prudential Plc

Very good diversification

The 3 months correlation between Visa and Prudential is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Prudential plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential plc 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 Prudential Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential plc has no effect on the direction of Visa i.e., Visa and Prudential Plc go up and down completely randomly.

Pair Corralation between Visa and Prudential Plc

Taking into account the 90-day investment horizon Visa is expected to generate 1.19 times less return on investment than Prudential Plc. But when comparing it to its historical volatility, Visa Class A is 1.8 times less risky than Prudential Plc. It trades about 0.12 of its potential returns per unit of risk. Prudential plc is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,450  in Prudential plc on September 12, 2024 and sell it today you would earn a total of  160.00  from holding Prudential plc or generate 11.03% 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.  Prudential plc

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 weak basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Prudential plc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential plc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Prudential Plc may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Visa and Prudential Plc

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

The idea behind Visa Class A and Prudential plc 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.