Correlation Between Visa and General American

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

Diversification Opportunities for Visa and General American

0.06

Correlation Coefficient

Visa  General American

Significant diversification

The 3 months correlation between Visa and General is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and General American Investors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General American Inv 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 General American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General American Inv has no effect on the direction of Visa i.e., Visa and General American go up and down completely randomly.

Pair Corralation between Visa and General American

Taking into account the 90-day investment horizon Visa Class A is expected to under-perform the General American. In addition to that, Visa is 1.24 times more volatile than General American Investors. It trades about -0.06 of its total potential returns per unit of risk. General American Investors is currently generating about 0.1 per unit of volatility. If you would invest  5,371  in General American Investors on February 2, 2024 and sell it today you would earn a total of  212.00  from holding General American Investors or generate 3.95% return on investment over 90 days.

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

Visa Class A  vs.  General American Investors

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.

General American Inv

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General American Investors are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, General American is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Visa and General American

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

The idea behind Visa Class A and General American Investors 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..