Correlation Between Visa and Preferred Bank
Can any of the company-specific risk be diversified away by investing in both Visa and Preferred Bank 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 Preferred Bank 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 Preferred Bank, you can compare the effects of market volatilities on Visa and Preferred Bank 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 Preferred Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Preferred Bank.
Diversification Opportunities for Visa and Preferred Bank
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Visa and Preferred is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Preferred Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Preferred Bank 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 Preferred Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Preferred Bank has no effect on the direction of Visa i.e., Visa and Preferred Bank go up and down completely randomly.
Pair Corralation between Visa and Preferred Bank
Taking into account the 90-day investment horizon Visa is expected to generate 1.37 times less return on investment than Preferred Bank. But when comparing it to its historical volatility, Visa Class A is 2.39 times less risky than Preferred Bank. It trades about 0.33 of its potential returns per unit of risk. Preferred Bank is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 8,530 in Preferred Bank on August 27, 2024 and sell it today you would earn a total of 1,037 from holding Preferred Bank or generate 12.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Visa Class A vs. Preferred Bank
Performance |
| Timeline |
| Visa Class A |
| Preferred Bank |
Visa and Preferred Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Visa and Preferred Bank
The main advantage of trading using opposite Visa and Preferred Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa position performs unexpectedly, Preferred Bank 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 Preferred Bank will offset losses from the drop in Preferred Bank's long position.| Visa vs. American Express | Visa vs. Morningstar Unconstrained Allocation | Visa vs. Sitka Gold Corp | Visa vs. MSCI ACWI exAUCONSUMER |
| Preferred Bank vs. Pacific Premier Bancorp | Preferred Bank vs. Heritage Financial | Preferred Bank vs. QCR Holdings | Preferred Bank vs. Lakeland Financial |
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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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