Correlation Between Visa and AECC Aviation

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

Diversification Opportunities for Visa and AECC Aviation

0.53
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Visa and AECC is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and AECC Aviation Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AECC Aviation Power 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 AECC Aviation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AECC Aviation Power has no effect on the direction of Visa i.e., Visa and AECC Aviation go up and down completely randomly.

Pair Corralation between Visa and AECC Aviation

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.58 times more return on investment than AECC Aviation. However, Visa Class A is 1.72 times less risky than AECC Aviation. It trades about 0.09 of its potential returns per unit of risk. AECC Aviation Power is currently generating about 0.01 per unit of risk. If you would invest  21,003  in Visa Class A on September 4, 2024 and sell it today you would earn a total of  10,662  from holding Visa Class A or generate 50.76% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy96.16%
ValuesDaily Returns

Visa Class A  vs.  AECC Aviation Power

 Performance 
       Timeline  
Visa Class A 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.
AECC Aviation Power 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in AECC Aviation Power are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, AECC Aviation sustained solid returns over the last few months and may actually be approaching a breakup point.

Visa and AECC Aviation Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Visa and AECC Aviation

The main advantage of trading using opposite Visa and AECC Aviation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa position performs unexpectedly, AECC Aviation 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 AECC Aviation will offset losses from the drop in AECC Aviation's long position.
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The idea behind Visa Class A and AECC Aviation Power 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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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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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