Correlation Between Visa and Union Pacific

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

Diversification Opportunities for Visa and Union Pacific

0.67

Correlation Coefficient

Visa  Union Pacific

Poor diversification

The 3 months correlation between Visa and Union is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Union Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Pacific 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 Union Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Pacific has no effect on the direction of Visa i.e., Visa and Union Pacific go up and down completely randomly.

Pair Corralation between Visa and Union Pacific

Taking into account the 90-day investment horizon Visa Class A is expected to under-perform the Union Pacific. But the stock apears to be less risky and, when comparing its historical volatility, Visa Class A is 1.99 times less risky than Union Pacific. The stock trades about -0.21 of its potential returns per unit of risk. The Union Pacific is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  24,155  in Union Pacific on February 3, 2024 and sell it today you would lose (386.00) from holding Union Pacific or give up 1.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Visa Class A  vs.  Union Pacific

Visa Class A

Risk-Adjusted Performance

0 of 100

Very Weak

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 latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Union Pacific

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Union Pacific has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Union Pacific is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Visa and Union Pacific

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

The idea behind Visa Class A and Union Pacific 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.