Correlation Between Visa and Fortescue Metals
Can any of the company-specific risk be diversified away by investing in both Visa and Fortescue Metals 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 Fortescue Metals 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 Fortescue Metals Group, you can compare the effects of market volatilities on Visa and Fortescue Metals 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 Fortescue Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Fortescue Metals.
Diversification Opportunities for Visa and Fortescue Metals
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Visa and Fortescue is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Fortescue Metals Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortescue Metals 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 Fortescue Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortescue Metals has no effect on the direction of Visa i.e., Visa and Fortescue Metals go up and down completely randomly.
Pair Corralation between Visa and Fortescue Metals
Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.47 times more return on investment than Fortescue Metals. However, Visa Class A is 2.11 times less risky than Fortescue Metals. It trades about 0.35 of its potential returns per unit of risk. Fortescue Metals Group is currently generating about -0.01 per unit of risk. If you would invest 28,929 in Visa Class A on September 1, 2024 and sell it today you would earn a total of 2,579 from holding Visa Class A or generate 8.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Visa Class A vs. Fortescue Metals Group
Performance |
| Timeline |
| Visa Class A |
| Fortescue Metals |
Visa and Fortescue Metals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Visa and Fortescue Metals
The main advantage of trading using opposite Visa and Fortescue Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa position performs unexpectedly, Fortescue Metals 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 Fortescue Metals will offset losses from the drop in Fortescue Metals' long position.| Visa vs. American Express | Visa vs. PayPal Holdings | Visa vs. Capital One Financial | Visa vs. Upstart Holdings |
| Fortescue Metals vs. IGO Limited | Fortescue Metals vs. Qubec Nickel Corp | Fortescue Metals vs. IGO Limited | Fortescue Metals vs. Hannan Metals |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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