Correlation Between Visa and DENT
Can any of the company-specific risk be diversified away by investing in both Visa and DENT 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 DENT 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 DENT, you can compare the effects of market volatilities on Visa and DENT 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 DENT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and DENT.
Diversification Opportunities for Visa and DENT
Very weak diversification
The 3 months correlation between Visa and DENT is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and DENT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DENT 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 DENT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DENT has no effect on the direction of Visa i.e., Visa and DENT go up and down completely randomly.
Pair Corralation between Visa and DENT
Taking into account the 90-day investment horizon Visa is expected to generate 3.28 times less return on investment than DENT. But when comparing it to its historical volatility, Visa Class A is 4.08 times less risky than DENT. It trades about 0.3 of its potential returns per unit of risk. DENT is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 0.09 in DENT on August 23, 2024 and sell it today you would earn a total of 0.03 from holding DENT or generate 29.51% 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. DENT
Performance |
| Timeline |
| Visa Class A |
| DENT |
Visa and DENT Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Visa and DENT
The main advantage of trading using opposite Visa and DENT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa position performs unexpectedly, DENT 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 DENT will offset losses from the drop in DENT's long position.| Visa vs. American Express | Visa vs. PayPal Holdings | Visa vs. Capital One Financial | Visa vs. Upstart Holdings |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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