Correlation Between Visa and NetScout Systems

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

Diversification Opportunities for Visa and NetScout Systems

0.5

Correlation Coefficient

Visa  NetScout Systems

Very weak diversification

The 3 months correlation between Visa and NetScout is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and NetScout Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetScout Systems 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 NetScout Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetScout Systems has no effect on the direction of Visa i.e., Visa and NetScout Systems go up and down completely randomly.

Pair Corralation between Visa and NetScout Systems

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.46 times more return on investment than NetScout Systems. However, Visa Class A is 2.16 times less risky than NetScout Systems. It trades about 0.06 of its potential returns per unit of risk. NetScout Systems is currently generating about 0.03 per unit of risk. If you would invest  27,401  in Visa Class A on August 9, 2024 and sell it today you would earn a total of  3,339  from holding Visa Class A or generate 12.19% return on investment over 90 days.

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

Visa Class A  vs.  NetScout Systems

Visa Class A

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

NetScout Systems

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NetScout Systems are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, NetScout Systems unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and NetScout Systems

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

The idea behind Visa Class A and NetScout Systems 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.