Correlation Between Visa and Xtrackers
Can any of the company-specific risk be diversified away by investing in both Visa and Xtrackers 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 Xtrackers 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 Xtrackers SP 500, you can compare the effects of market volatilities on Visa and Xtrackers 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 Xtrackers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Xtrackers.
Diversification Opportunities for Visa and Xtrackers
Poor diversification
The 3 months correlation between Visa and Xtrackers is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Xtrackers SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers SP 500 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 Xtrackers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers SP 500 has no effect on the direction of Visa i.e., Visa and Xtrackers go up and down completely randomly.
Pair Corralation between Visa and Xtrackers
Taking into account the 90-day investment horizon Visa is expected to generate 1.79 times less return on investment than Xtrackers. But when comparing it to its historical volatility, Visa Class A is 1.59 times less risky than Xtrackers. It trades about 0.09 of its potential returns per unit of risk. Xtrackers SP 500 is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 11,699 in Xtrackers SP 500 on August 27, 2024 and sell it today you would earn a total of 12,268 from holding Xtrackers SP 500 or generate 104.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.6% |
| Values | Daily Returns |
Visa Class A vs. Xtrackers SP 500
Performance |
| Timeline |
| Visa Class A |
| Xtrackers SP 500 |
Visa and Xtrackers Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Visa and Xtrackers
The main advantage of trading using opposite Visa and Xtrackers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa position performs unexpectedly, Xtrackers 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 Xtrackers will offset losses from the drop in Xtrackers' long position.| Visa vs. American Express | Visa vs. Morningstar Unconstrained Allocation | Visa vs. Sitka Gold Corp | Visa vs. MSCI ACWI exAUCONSUMER |
| Xtrackers vs. WisdomTree SP 500 | Xtrackers vs. WisdomTree Silver 3x | Xtrackers vs. Lyxor 10Y Inflation | Xtrackers vs. GraniteShares 3x Long |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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