Correlation Between Visa and European Residential

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

Diversification Opportunities for Visa and European Residential

0.12

Correlation Coefficient

Visa  European Residential

Average diversification

The 3 months correlation between Visa and European is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and European Residential Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on European Residential Real 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 European Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of European Residential Real has no effect on the direction of Visa i.e., Visa and European Residential go up and down completely randomly.

Pair Corralation between Visa and European Residential

Taking into account the 90-day investment horizon Visa Class A is expected to under-perform the European Residential. But the stock apears to be less risky and, when comparing its historical volatility, Visa Class A is 1.31 times less risky than European Residential. The stock trades about -0.03 of its potential returns per unit of risk. The European Residential Real is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  235.00  in European Residential Real on March 28, 2024 and sell it today you would lose (2.00) from holding European Residential Real or give up 0.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Visa Class A  vs.  European Residential Real

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.

European Residential Real

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days European Residential Real has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, European Residential is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Visa and European Residential

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

The idea behind Visa Class A and European Residential Real 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.