Correlation Between Visa and Sterling Metals

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Can any of the company-specific risk be diversified away by investing in both Visa and Sterling Metals 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 Sterling Metals 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 Sterling Metals Corp, you can compare the effects of market volatilities on Visa and Sterling Metals 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 Sterling Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Sterling Metals.

Diversification Opportunities for Visa and Sterling Metals

-0.76
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Visa and Sterling is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Sterling Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Metals Corp 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 Sterling Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Metals Corp has no effect on the direction of Visa i.e., Visa and Sterling Metals go up and down completely randomly.

Pair Corralation between Visa and Sterling Metals

Taking into account the 90-day investment horizon Visa is expected to generate 4.87 times less return on investment than Sterling Metals. But when comparing it to its historical volatility, Visa Class A is 13.35 times less risky than Sterling Metals. It trades about 0.1 of its potential returns per unit of risk. Sterling Metals Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  8.09  in Sterling Metals Corp on August 31, 2024 and sell it today you would lose (5.67) from holding Sterling Metals Corp or give up 70.09% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy99.73%
ValuesDaily Returns

Visa Class A  vs.  Sterling Metals Corp

 Performance 
       Timeline  
Visa Class A 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.
Sterling Metals Corp 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Sterling Metals Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Visa and Sterling Metals Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Visa and Sterling Metals

The main advantage of trading using opposite Visa and Sterling Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa position performs unexpectedly, Sterling Metals 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 Sterling Metals will offset losses from the drop in Sterling Metals' long position.
The idea behind Visa Class A and Sterling Metals Corp 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.
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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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