Correlation Between InterContinental and Visa

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Can any of the company-specific risk be diversified away by investing in both InterContinental 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 InterContinental and Visa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between InterContinental Hotels Group and Visa Class A, you can compare the effects of market volatilities on InterContinental 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 InterContinental with a short position of Visa. Check out your portfolio center. Please also check ongoing floating volatility patterns of InterContinental and Visa.

Diversification Opportunities for InterContinental and Visa

0.87
  Correlation Coefficient

Very poor diversification

The 3 months correlation between InterContinental and Visa is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding InterContinental Hotels Group and Visa Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Visa Class A and InterContinental 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 InterContinental Hotels Group 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 Class A has no effect on the direction of InterContinental i.e., InterContinental and Visa go up and down completely randomly.

Pair Corralation between InterContinental and Visa

Considering the 90-day investment horizon InterContinental Hotels Group is expected to under-perform the Visa. In addition to that, InterContinental is 1.18 times more volatile than Visa Class A. It trades about -0.16 of its total potential returns per unit of risk. Visa Class A is currently generating about -0.07 per unit of volatility. If you would invest  28,317  in Visa Class A on December 29, 2023 and sell it today you would lose (415.00) from holding Visa Class A or give up 1.47% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

InterContinental Hotels Group  vs.  Visa Class A

 Performance 
       Timeline  
InterContinental Hotels 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in InterContinental Hotels Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent technical indicators, InterContinental reported solid returns over the last few months and may actually be approaching a breakup point.
Visa Class A 

Risk-Adjusted Performance

10 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in April 2024.

InterContinental and Visa Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with InterContinental and Visa

The main advantage of trading using opposite InterContinental and Visa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if InterContinental 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 InterContinental Hotels Group and Visa Class A 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

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