Correlation Between Visa and AETNA

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

Diversification Opportunities for Visa and AETNA

-0.7

Correlation Coefficient

Visa  AETNA

Excellent diversification

The 3 months correlation between Visa and AETNA is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and AETNA INC NEW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AETNA INC NEW 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 AETNA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AETNA INC NEW has no effect on the direction of Visa i.e., Visa and AETNA go up and down completely randomly.

Pair Corralation between Visa and AETNA

Taking into account the 90-day investment horizon Visa Class A is expected to generate 1.47 times more return on investment than AETNA. However, Visa is 1.47 times more volatile than AETNA INC NEW. It trades about 0.16 of its potential returns per unit of risk. AETNA INC NEW is currently generating about -0.12 per unit of risk. If you would invest  27,995  in Visa Class A on September 4, 2024 and sell it today you would earn a total of  3,670  from holding Visa Class A or generate 13.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	88.89%
Values	Daily Returns

Visa Class A  vs.  AETNA INC NEW

Visa Class A

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 12 (%) 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.

AETNA INC NEW

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Visa and AETNA

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

The idea behind Visa Class A and AETNA INC NEW 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.