Correlation Between Visa and Stepan
Can any of the company-specific risk be diversified away by investing in both Visa and Stepan 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 Stepan 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 Stepan Company, you can compare the effects of market volatilities on Visa and Stepan 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 Stepan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Stepan.
Diversification Opportunities for Visa and Stepan
Average diversification
The 3 months correlation between Visa and Stepan is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company 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 Stepan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stepan Company has no effect on the direction of Visa i.e., Visa and Stepan go up and down completely randomly.
Pair Corralation between Visa and Stepan
Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.57 times more return on investment than Stepan. However, Visa Class A is 1.75 times less risky than Stepan. It trades about 0.09 of its potential returns per unit of risk. Stepan Company is currently generating about -0.03 per unit of risk. If you would invest 20,548 in Visa Class A on August 30, 2024 and sell it today you would earn a total of 10,922 from holding Visa Class A or generate 53.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Visa Class A vs. Stepan Company
Performance |
| Timeline |
| Visa Class A |
| Stepan Company |
Visa and Stepan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Visa and Stepan
The main advantage of trading using opposite Visa and Stepan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa position performs unexpectedly, Stepan 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 Stepan will offset losses from the drop in Stepan's long position.| Visa vs. American Express | Visa vs. PayPal Holdings | Visa vs. Capital One Financial | Visa vs. Upstart Holdings |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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