Correlation Between CHEMICAL INDUSTRIES and Visa

Can any of the company-specific risk be diversified away by investing in both CHEMICAL INDUSTRIES and Visa 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 CHEMICAL INDUSTRIES and Visa into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CHEMICAL INDUSTRIES and Visa Inc, you can compare the effects of market volatilities on CHEMICAL INDUSTRIES and Visa 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 CHEMICAL INDUSTRIES with a short position of Visa. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHEMICAL INDUSTRIES and Visa.

Diversification Opportunities for CHEMICAL INDUSTRIES and Visa

0.0

Correlation Coefficient

CHEMICAL INDUSTRIES  Visa

Pay attention - limited upside

The 3 months correlation between CHEMICAL and Visa is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding CHEMICAL INDUSTRIES and Visa Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Visa Inc and CHEMICAL INDUSTRIES 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 CHEMICAL INDUSTRIES are associated (or correlated) with Visa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Visa Inc has no effect on the direction of CHEMICAL INDUSTRIES i.e., CHEMICAL INDUSTRIES and Visa go up and down completely randomly.

Pair Corralation between CHEMICAL INDUSTRIES and Visa

Assuming the 90 days trading horizon CHEMICAL INDUSTRIES is expected to generate 5.5 times less return on investment than Visa. But when comparing it to its historical volatility, CHEMICAL INDUSTRIES is 3.8 times less risky than Visa. It trades about 0.07 of its potential returns per unit of risk. Visa Inc is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  20,431  in Visa Inc on August 31, 2024 and sell it today you would earn a total of  9,549  from holding Visa Inc or generate 46.74% return on investment over 90 days.

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

CHEMICAL INDUSTRIES  vs.  Visa Inc

CHEMICAL INDUSTRIES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHEMICAL INDUSTRIES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, CHEMICAL INDUSTRIES is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Visa Inc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Visa reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CHEMICAL INDUSTRIES and Visa

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

The idea behind CHEMICAL INDUSTRIES and Visa Inc 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.