Correlation Between Visa and Nike
Can any of the company-specific risk be diversified away by investing in both Visa and Nike 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 Nike 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 Nike Inc, you can compare the effects of market volatilities on Visa and Nike 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 Nike. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Nike.
Diversification Opportunities for Visa and Nike
Very good diversification
The 3 months correlation between Visa and Nike is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Nike Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nike Inc 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 Nike. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nike Inc has no effect on the direction of Visa i.e., Visa and Nike go up and down completely randomly.
Pair Corralation between Visa and Nike
Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.58 times more return on investment than Nike. However, Visa Class A is 1.71 times less risky than Nike. It trades about 0.09 of its potential returns per unit of risk. Nike Inc is currently generating about -0.03 per unit of risk. If you would invest 20,485 in Visa Class A on September 19, 2024 and sell it today you would earn a total of 10,493 from holding Visa Class A or generate 51.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 98.02% |
| Values | Daily Returns |
Visa Class A vs. Nike Inc
Performance |
| Timeline |
| Visa Class A |
| Nike Inc |
Visa and Nike Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Visa and Nike
The main advantage of trading using opposite Visa and Nike positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa position performs unexpectedly, Nike 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 Nike will offset losses from the drop in Nike's long position.The idea behind Visa Class A and Nike Inc 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.| Nike vs. GALENA MINING LTD | Nike vs. INVITATION HOMES DL | Nike vs. Haier Smart Home | Nike vs. Tri Pointe Homes |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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