Correlation Between Visa and LEGAL GENERAL
Can any of the company-specific risk be diversified away by investing in both Visa and LEGAL GENERAL 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 LEGAL GENERAL 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 LEGAL GENERAL, you can compare the effects of market volatilities on Visa and LEGAL GENERAL 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 LEGAL GENERAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and LEGAL GENERAL.
Diversification Opportunities for Visa and LEGAL GENERAL
0.05 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Visa and LEGAL is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and LEGAL GENERAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LEGAL GENERAL 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 LEGAL GENERAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LEGAL GENERAL has no effect on the direction of Visa i.e., Visa and LEGAL GENERAL go up and down completely randomly.
Pair Corralation between Visa and LEGAL GENERAL
Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.98 times more return on investment than LEGAL GENERAL. However, Visa Class A is 1.02 times less risky than LEGAL GENERAL. It trades about 0.24 of its potential returns per unit of risk. LEGAL GENERAL is currently generating about -0.03 per unit of risk. If you would invest 28,322 in Visa Class A on September 23, 2024 and sell it today you would earn a total of 3,449 from holding Visa Class A or generate 12.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 97.73% |
| Values | Daily Returns |
Visa Class A vs. LEGAL GENERAL
Performance |
| Timeline |
| Visa Class A |
| LEGAL GENERAL |
Visa and LEGAL GENERAL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Visa and LEGAL GENERAL
The main advantage of trading using opposite Visa and LEGAL GENERAL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa position performs unexpectedly, LEGAL GENERAL 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 LEGAL GENERAL will offset losses from the drop in LEGAL GENERAL's long position.The idea behind Visa Class A and LEGAL GENERAL 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.| LEGAL GENERAL vs. Apple Inc | LEGAL GENERAL vs. Apple Inc | LEGAL GENERAL vs. Apple Inc | LEGAL GENERAL vs. Apple Inc |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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