Correlation Between Visa and Advance Auto

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Can any of the company-specific risk be diversified away by investing in both Visa and Advance Auto 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 Advance Auto into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Visa Inc and Advance Auto Parts, you can compare the effects of market volatilities on Visa and Advance Auto 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 Advance Auto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Advance Auto.

Diversification Opportunities for Visa and Advance Auto

0.59
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Visa and Advance is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Visa Inc and Advance Auto Parts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advance Auto Parts 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 Inc are associated (or correlated) with Advance Auto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advance Auto Parts has no effect on the direction of Visa i.e., Visa and Advance Auto go up and down completely randomly.

Pair Corralation between Visa and Advance Auto

Taking into account the 90-day investment horizon Visa is expected to generate 2.9 times less return on investment than Advance Auto. But when comparing it to its historical volatility, Visa Inc is 1.02 times less risky than Advance Auto. It trades about 0.01 of its potential returns per unit of risk. Advance Auto Parts is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  13,992  in Advance Auto Parts on April 8, 2022 and sell it today you would earn a total of  4,185  from holding Advance Auto Parts or generate 29.91% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Visa Inc  vs.  Advance Auto Parts

 Performance (%) 
      Timeline 
Visa Inc 
Visa Performance
0 of 100
Over the last 90 days Visa Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Visa is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Structure and Payout Changes

Forward Annual Dividend Yield
0.0075
Payout Ratio
0.22
Last Split Factor
4:1
Forward Annual Dividend Rate
1.5
Dividend Date
2022-06-01
Ex Dividend Date
2022-05-12
Last Split Date
2015-03-19

Visa Price Channel

Advance Auto Parts 
Advance Performance
0 of 100
Over the last 90 days Advance Auto Parts has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in August 2022. The recent disarray may also be a sign of long period up-swing for the firm insiders.

Structure and Payout Changes

Forward Annual Dividend Yield
0.033
Payout Ratio
0.41
Last Split Factor
3:2
Forward Annual Dividend Rate
6.0
Dividend Date
2022-07-01
Ex Dividend Date
2022-06-16
Last Split Date
2005-09-26

Advance Price Channel

Visa and Advance Auto Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Visa and Advance Auto

The main advantage of trading using opposite Visa and Advance Auto positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa position performs unexpectedly, Advance Auto 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 Advance Auto will offset losses from the drop in Advance Auto's long position.
The idea behind Visa Inc and Advance Auto Parts 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.

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