Correlation Between Visa and GM
Can any of the company-specific risk be diversified away by investing in both Visa and GM 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 GM 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 General Motors, you can compare the effects of market volatilities on Visa and GM 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 GM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and GM.
Diversification Opportunities for Visa and GM
Weak diversification
The 3 months correlation between Visa and GM is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors 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 GM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Motors has no effect on the direction of Visa i.e., Visa and GM go up and down completely randomly.
Pair Corralation between Visa and GM
Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.56 times more return on investment than GM. However, Visa Class A is 1.79 times less risky than GM. It trades about 0.05 of its potential returns per unit of risk. General Motors is currently generating about 0.02 per unit of risk. If you would invest 20,824 in Visa Class A on January 21, 2024 and sell it today you would earn a total of 6,154 from holding Visa Class A or generate 29.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Visa Class A vs. General Motors
Performance |
| Timeline |
| Visa Class A |
| General Motors |
Visa and GM Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Visa and GM
The main advantage of trading using opposite Visa and GM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa position performs unexpectedly, GM 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 GM will offset losses from the drop in GM's long position.| Visa vs. American Express | Visa vs. Capital One Financial | Visa vs. Upstart HoldingsInc | Visa vs. Ally Financial |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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