Correlation Between Visa and Smith Wesson

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

Diversification Opportunities for Visa and Smith Wesson

0.13

Correlation Coefficient

Visa  Smith Wesson

Average diversification

The 3 months correlation between Visa and Smith is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Smith Wesson Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith Wesson Brands 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 Smith Wesson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith Wesson Brands has no effect on the direction of Visa i.e., Visa and Smith Wesson go up and down completely randomly.

Pair Corralation between Visa and Smith Wesson

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.15 times more return on investment than Smith Wesson. However, Visa Class A is 6.46 times less risky than Smith Wesson. It trades about 0.08 of its potential returns per unit of risk. Smith Wesson Brands is currently generating about -0.17 per unit of risk. If you would invest  31,032  in Visa Class A on September 12, 2024 and sell it today you would earn a total of  373.50  from holding Visa Class A or generate 1.2% return on investment over 90 days.

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

Visa Class A  vs.  Smith Wesson Brands

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.

Smith Wesson Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith Wesson Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's fundamental drivers remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Visa and Smith Wesson

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

The idea behind Visa Class A and Smith Wesson Brands 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.