Correlation Between Visa and Microsoft
Can any of the company-specific risk be diversified away by investing in both Visa and Microsoft 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 Microsoft 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 Microsoft, you can compare the effects of market volatilities on Visa and Microsoft 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 Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Microsoft.
Diversification Opportunities for Visa and Microsoft
Very weak diversification
The 3 months correlation between Visa and Microsoft is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Visa i.e., Visa and Microsoft go up and down completely randomly.
Pair Corralation between Visa and Microsoft
Taking into account the 90-day investment horizon Visa is expected to generate 1.58 times less return on investment than Microsoft. But when comparing it to its historical volatility, Visa Class A is 1.29 times less risky than Microsoft. It trades about 0.1 of its potential returns per unit of risk. Microsoft is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 702,809 in Microsoft on August 28, 2024 and sell it today you would earn a total of 184,538 from holding Microsoft or generate 26.26% 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. Microsoft
Performance |
| Timeline |
| Visa Class A |
| Microsoft |
Visa and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Visa and Microsoft
The main advantage of trading using opposite Visa and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa position performs unexpectedly, Microsoft 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 Microsoft will offset losses from the drop in Microsoft's long position.| Visa vs. American Express | Visa vs. Morningstar Unconstrained Allocation | Visa vs. Sitka Gold Corp | Visa vs. MSCI ACWI exAUCONSUMER |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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