Correlation Between Align Technology and Mastercard Incorporated

Can any of the company-specific risk be diversified away by investing in both Align Technology and Mastercard Incorporated 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 Align Technology and Mastercard Incorporated into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Align Technology and Mastercard Incorporated, you can compare the effects of market volatilities on Align Technology and Mastercard Incorporated 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 Align Technology with a short position of Mastercard Incorporated. Check out your portfolio center. Please also check ongoing floating volatility patterns of Align Technology and Mastercard Incorporated.

Diversification Opportunities for Align Technology and Mastercard Incorporated

0.6

Correlation Coefficient

Align Technology  Mastercard Incorporated

Poor diversification

The 3 months correlation between Align and Mastercard is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Align Technology and Mastercard Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mastercard Incorporated and Align Technology 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 Align Technology are associated (or correlated) with Mastercard Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mastercard Incorporated has no effect on the direction of Align Technology i.e., Align Technology and Mastercard Incorporated go up and down completely randomly.

Pair Corralation between Align Technology and Mastercard Incorporated

Assuming the 90 days trading horizon Align Technology is expected to generate 1.54 times less return on investment than Mastercard Incorporated. In addition to that, Align Technology is 1.22 times more volatile than Mastercard Incorporated. It trades about 0.09 of its total potential returns per unit of risk. Mastercard Incorporated is currently generating about 0.16 per unit of volatility. If you would invest  9,528  in Mastercard Incorporated on October 7, 2024 and sell it today you would earn a total of  948.00  from holding Mastercard Incorporated or generate 9.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Align Technology  vs.  Mastercard Incorporated

Align Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Align Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Align Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Mastercard Incorporated

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard Incorporated are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Mastercard Incorporated sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Align Technology and Mastercard Incorporated

The main advantage of trading using opposite Align Technology and Mastercard Incorporated positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Align Technology position performs unexpectedly, Mastercard Incorporated 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 Mastercard Incorporated will offset losses from the drop in Mastercard Incorporated's long position.

The idea behind Align Technology and Mastercard Incorporated 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.

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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.