Correlation Between Visa and NXT
Can any of the company-specific risk be diversified away by investing in both Visa and NXT 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 NXT 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 NXT, you can compare the effects of market volatilities on Visa and NXT 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 NXT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and NXT.
Diversification Opportunities for Visa and NXT
Very poor diversification
The 3 months correlation between Visa and NXT is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and NXT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NXT 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 NXT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NXT has no effect on the direction of Visa i.e., Visa and NXT go up and down completely randomly.
Pair Corralation between Visa and NXT
Taking into account the 90-day investment horizon Visa is expected to generate 7.2 times less return on investment than NXT. But when comparing it to its historical volatility, Visa Class A is 12.56 times less risky than NXT. It trades about 0.08 of its potential returns per unit of risk. NXT is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 0.14 in NXT on August 27, 2024 and sell it today you would lose (0.04) from holding NXT or give up 29.44% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 54.44% |
| Values | Daily Returns |
Visa Class A vs. NXT
Performance |
| Timeline |
| Visa Class A |
| NXT |
Visa and NXT Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Visa and NXT
The main advantage of trading using opposite Visa and NXT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa position performs unexpectedly, NXT 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 NXT will offset losses from the drop in NXT'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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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