Correlation Between Visa and Inverse Government

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

Diversification Opportunities for Visa and Inverse Government

0.18

Correlation Coefficient

Visa  Inverse Government

Average diversification

The 3 months correlation between Visa and Inverse is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Inverse Government Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Government Long 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 Inverse Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Government Long has no effect on the direction of Visa i.e., Visa and Inverse Government go up and down completely randomly.

Pair Corralation between Visa and Inverse Government

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.47 times more return on investment than Inverse Government. However, Visa Class A is 2.13 times less risky than Inverse Government. It trades about 0.14 of its potential returns per unit of risk. Inverse Government Long is currently generating about -0.11 per unit of risk. If you would invest  31,182  in Visa Class A on September 27, 2024 and sell it today you would earn a total of  909.00  from holding Visa Class A or generate 2.92% return on investment over 90 days.

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

Visa Class A  vs.  Inverse Government Long

Visa Class A

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 18 (%) 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.

Inverse Government Long

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Government Long are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Inverse Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Visa and Inverse Government

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

The idea behind Visa Class A and Inverse Government Long 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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.