Correlation Between Visa and Lam Research

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

Diversification Opportunities for Visa and Lam Research

0.4

Correlation Coefficient

Visa  Lam Research

Very weak diversification

The 3 months correlation between Visa and Lam is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Lam Research Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lam Research Corp 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 Lam Research. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lam Research Corp has no effect on the direction of Visa i.e., Visa and Lam Research go up and down completely randomly.

Pair Corralation between Visa and Lam Research

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.28 times more return on investment than Lam Research. However, Visa Class A is 3.55 times less risky than Lam Research. It trades about -0.25 of its potential returns per unit of risk. Lam Research Corp is currently generating about -0.12 per unit of risk. If you would invest  27,776  in Visa Class A on February 6, 2024 and sell it today you would lose (927.00) from holding Visa Class A or give up 3.34% of portfolio value over 90 days.

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

Visa Class A  vs.  Lam Research Corp

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.

Lam Research Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lam Research Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental indicators, Lam Research may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Visa and Lam Research

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

The idea behind Visa Class A and Lam Research Corp 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.