Correlation Between Visa and Rocket Internet
Can any of the company-specific risk be diversified away by investing in both Visa and Rocket Internet 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 Rocket Internet 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 Rocket Internet SE, you can compare the effects of market volatilities on Visa and Rocket Internet 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 Rocket Internet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Rocket Internet.
Diversification Opportunities for Visa and Rocket Internet
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Visa and Rocket is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Rocket Internet SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rocket Internet SE 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 Rocket Internet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rocket Internet SE has no effect on the direction of Visa i.e., Visa and Rocket Internet go up and down completely randomly.
Pair Corralation between Visa and Rocket Internet
Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.58 times more return on investment than Rocket Internet. However, Visa Class A is 1.72 times less risky than Rocket Internet. It trades about 0.09 of its potential returns per unit of risk. Rocket Internet SE is currently generating about -0.03 per unit of risk. If you would invest 20,975 in Visa Class A on September 3, 2024 and sell it today you would earn a total of 10,533 from holding Visa Class A or generate 50.22% 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. Rocket Internet SE
Performance |
| Timeline |
| Visa Class A |
| Rocket Internet SE |
Visa and Rocket Internet Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Visa and Rocket Internet
The main advantage of trading using opposite Visa and Rocket Internet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa position performs unexpectedly, Rocket Internet 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 Rocket Internet will offset losses from the drop in Rocket Internet's long position.| Visa vs. American Express | Visa vs. Capital One Financial | Visa vs. Upstart Holdings | Visa vs. Ally Financial |
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Rocket Internet as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Rocket Internet's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Rocket Internet's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Rocket Internet SE.
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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