Correlation Between Visa and Wealthsimple North

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

Diversification Opportunities for Visa and Wealthsimple North

0.8

Correlation Coefficient

Visa  Wealthsimple North

Very poor diversification

The 3 months correlation between Visa and Wealthsimple is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Wealthsimple North America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wealthsimple North 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 Wealthsimple North. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wealthsimple North has no effect on the direction of Visa i.e., Visa and Wealthsimple North go up and down completely randomly.

Pair Corralation between Visa and Wealthsimple North

Taking into account the 90-day investment horizon Visa Class A is expected to generate 1.63 times more return on investment than Wealthsimple North. However, Visa is 1.63 times more volatile than Wealthsimple North America. It trades about 0.1 of its potential returns per unit of risk. Wealthsimple North America is currently generating about 0.15 per unit of risk. If you would invest  30,948  in Visa Class A on September 14, 2024 and sell it today you would earn a total of  475.00  from holding Visa Class A or generate 1.53% return on investment over 90 days.

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

Visa Class A  vs.  Wealthsimple North America

Visa Class A

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 8 (%) 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.

Wealthsimple North

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Wealthsimple North America are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Wealthsimple North is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Visa and Wealthsimple North

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

The idea behind Visa Class A and Wealthsimple North America 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.