Correlation Between Mastercard and GMO Internet

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

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

Diversification Opportunities for Mastercard and GMO Internet

0.62

Correlation Coefficient

Mastercard  GMO Internet

Poor diversification

The 3 months correlation between Mastercard and GMO is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard and GMO Internet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMO Internet and Mastercard 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 Mastercard are associated (or correlated) with GMO Internet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMO Internet has no effect on the direction of Mastercard i.e., Mastercard and GMO Internet go up and down completely randomly.

Pair Corralation between Mastercard and GMO Internet

Assuming the 90 days horizon Mastercard is expected to generate 2.97 times less return on investment than GMO Internet. But when comparing it to its historical volatility, Mastercard is 2.11 times less risky than GMO Internet. It trades about 0.03 of its potential returns per unit of risk. GMO Internet is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,590  in GMO Internet on September 28, 2024 and sell it today you would earn a total of  20.00  from holding GMO Internet or generate 1.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Mastercard  vs.  GMO Internet

Mastercard

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Mastercard reported solid returns over the last few months and may actually be approaching a breakup point.

GMO Internet

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in GMO Internet are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, GMO Internet is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Mastercard and GMO Internet

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

The idea behind Mastercard and GMO Internet 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.