Correlation Between Visa and Sentinel Balanced

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

Diversification Opportunities for Visa and Sentinel Balanced

0.76

Correlation Coefficient

Visa  Sentinel Balanced

Poor diversification

The 3 months correlation between Visa and Sentinel is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Sentinel Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sentinel Balanced 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 Sentinel Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sentinel Balanced has no effect on the direction of Visa i.e., Visa and Sentinel Balanced go up and down completely randomly.

Pair Corralation between Visa and Sentinel Balanced

Taking into account the 90-day investment horizon Visa Class A is expected to generate 3.11 times more return on investment than Sentinel Balanced. However, Visa is 3.11 times more volatile than Sentinel Balanced Fund. It trades about 0.15 of its potential returns per unit of risk. Sentinel Balanced Fund is currently generating about 0.08 per unit of risk. If you would invest  28,422  in Visa Class A on September 20, 2024 and sell it today you would earn a total of  3,408  from holding Visa Class A or generate 11.99% return on investment over 90 days.

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

Visa Class A  vs.  Sentinel Balanced Fund

Visa Class A

Risk-Adjusted Performance

11 of 100

Good

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.

Sentinel Balanced

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sentinel Balanced Fund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Sentinel Balanced 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 Sentinel Balanced

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

The idea behind Visa Class A and Sentinel Balanced Fund 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.