Correlation Between Visa and SandRidge Energy

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

Diversification Opportunities for Visa and SandRidge Energy

-0.48
  Correlation Coefficient

Very good diversification

The 3 months correlation between Visa and SandRidge is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and SandRidge Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SandRidge Energy 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 SandRidge Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SandRidge Energy has no effect on the direction of Visa i.e., Visa and SandRidge Energy go up and down completely randomly.

Pair Corralation between Visa and SandRidge Energy

Taking into account the 90-day investment horizon Visa is expected to generate 1.03 times less return on investment than SandRidge Energy. But when comparing it to its historical volatility, Visa Class A is 1.44 times less risky than SandRidge Energy. It trades about 0.33 of its potential returns per unit of risk. SandRidge Energy is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  1,107  in SandRidge Energy on August 27, 2024 and sell it today you would earn a total of  104.00  from holding SandRidge Energy or generate 9.39% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Visa Class A  vs.  SandRidge Energy

 Performance 
       Timeline  
Visa Class A 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 13 (%) 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.
SandRidge Energy 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days SandRidge Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Visa and SandRidge Energy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Visa and SandRidge Energy

The main advantage of trading using opposite Visa and SandRidge Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa position performs unexpectedly, SandRidge Energy 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 SandRidge Energy will offset losses from the drop in SandRidge Energy's long position.
The idea behind Visa Class A and SandRidge Energy 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.
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 Global Correlations module to find global opportunities by holding instruments from different markets.

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