Correlation Between Visa and Northern Lights
Can any of the company-specific risk be diversified away by investing in both Visa and Northern Lights 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 Northern Lights 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 Northern Lights, you can compare the effects of market volatilities on Visa and Northern Lights 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 Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Northern Lights.
Diversification Opportunities for Visa and Northern Lights
0.57 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Visa and Northern is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights 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 Northern Lights. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Lights has no effect on the direction of Visa i.e., Visa and Northern Lights go up and down completely randomly.
Pair Corralation between Visa and Northern Lights
Taking into account the 90-day investment horizon Visa Class A is expected to generate 1.23 times more return on investment than Northern Lights. However, Visa is 1.23 times more volatile than Northern Lights. It trades about 0.08 of its potential returns per unit of risk. Northern Lights is currently generating about 0.08 per unit of risk. If you would invest 22,017 in Visa Class A on September 3, 2024 and sell it today you would earn a total of 9,491 from holding Visa Class A or generate 43.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 50.53% |
| Values | Daily Returns |
Visa Class A vs. Northern Lights
Performance |
| Timeline |
| Visa Class A |
| Northern Lights |
Visa and Northern Lights Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Visa and Northern Lights
The main advantage of trading using opposite Visa and Northern Lights positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa position performs unexpectedly, Northern Lights 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 Northern Lights will offset losses from the drop in Northern Lights' long position.| Visa vs. American Express | Visa vs. Capital One Financial | Visa vs. Upstart Holdings | Visa vs. Ally Financial |
| Northern Lights vs. FT Vest Equity | Northern Lights vs. Northern Lights | Northern Lights vs. Dimensional International High | Northern Lights vs. JPMorgan Fundamental Data |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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