Correlation Between Visa and Direxion
Can any of the company-specific risk be diversified away by investing in both Visa and Direxion 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 Direxion 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 Direxion, you can compare the effects of market volatilities on Visa and Direxion 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 Direxion. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Direxion.
Diversification Opportunities for Visa and Direxion
Poor diversification
The 3 months correlation between Visa and Direxion is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Direxion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direxion 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 Direxion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direxion has no effect on the direction of Visa i.e., Visa and Direxion go up and down completely randomly.
Pair Corralation between Visa and Direxion
Taking into account the 90-day investment horizon Visa is expected to generate 4.03 times less return on investment than Direxion. But when comparing it to its historical volatility, Visa Class A is 2.81 times less risky than Direxion. It trades about 0.09 of its potential returns per unit of risk. Direxion is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 848.00 in Direxion on September 20, 2024 and sell it today you would earn a total of 284.00 from holding Direxion or generate 33.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 17.17% |
| Values | Daily Returns |
Visa Class A vs. Direxion
Performance |
| Timeline |
| Visa Class A |
| Direxion |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Visa and Direxion Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Visa and Direxion
The main advantage of trading using opposite Visa and Direxion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa position performs unexpectedly, Direxion 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 Direxion will offset losses from the drop in Direxion's long position.The idea behind Visa Class A and Direxion 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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