Can any of the company-specific risk be diversified away by investing in both Visa and Cogeco 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 Cogeco 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 Cogeco Inc, you can compare the effects of market volatilities on Visa and Cogeco 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 Cogeco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Cogeco.
The 3 months correlation between Visa and Cogeco is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Cogeco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cogeco Inc 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 Cogeco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cogeco Inc has no effect on the direction of Visa i.e., Visa and Cogeco go up and down completely randomly.
Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.52 times more return on investment than Cogeco. However, Visa Class A is 1.91 times less risky than Cogeco. It trades about 0.09 of its potential returns per unit of risk. Cogeco Inc is currently generating about 0.0 per unit of risk. If you would invest 22,443 in Visa Class A on March 6, 2024 and sell it today you would earn a total of 4,595 from holding Visa Class A or generate 20.47% return on investment over 90 days.
Over the last 90 days Visa Class A has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Visa is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.
Over the last 90 days Cogeco Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in July 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.