Correlation Between Visa and Target

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

Diversification Opportunities for Visa and Target

-0.54

Correlation Coefficient

Visa  Target

Excellent diversification

The 3 months correlation between Visa and Target is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target 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 Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of Visa i.e., Visa and Target go up and down completely randomly.

Pair Corralation between Visa and Target

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.34 times more return on investment than Target. However, Visa Class A is 2.97 times less risky than Target. It trades about 0.26 of its potential returns per unit of risk. Target is currently generating about -0.05 per unit of risk. If you would invest  26,911  in Visa Class A on September 25, 2024 and sell it today you would earn a total of  5,154  from holding Visa Class A or generate 19.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.88%
Values	Daily Returns

Visa Class A  vs.  Target

Visa Class A

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 20 (%) 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.

Target

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Target has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Visa and Target

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

The idea behind Visa Class A and Target 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.