Correlation Between Mastercard and Marsh McLennan

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

By analyzing existing cross correlation between Mastercard and Marsh McLennan Companies, you can compare the effects of market volatilities on Mastercard and Marsh McLennan 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 Marsh McLennan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mastercard and Marsh McLennan.

Diversification Opportunities for Mastercard and Marsh McLennan

0.65

Correlation Coefficient

Mastercard  Marsh McLennan

Poor diversification

The 3 months correlation between Mastercard and Marsh is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard and Marsh McLennan Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marsh McLennan Companies 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 Marsh McLennan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marsh McLennan Companies has no effect on the direction of Mastercard i.e., Mastercard and Marsh McLennan go up and down completely randomly.

Pair Corralation between Mastercard and Marsh McLennan

Assuming the 90 days horizon Mastercard is expected to generate 1.05 times more return on investment than Marsh McLennan. However, Mastercard is 1.05 times more volatile than Marsh McLennan Companies. It trades about 0.14 of its potential returns per unit of risk. Marsh McLennan Companies is currently generating about -0.01 per unit of risk. If you would invest  47,080  in Mastercard on September 27, 2024 and sell it today you would earn a total of  3,540  from holding Mastercard or generate 7.52% return on investment over 90 days.

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

Mastercard  vs.  Marsh McLennan Companies

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.

Marsh McLennan Companies

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Marsh McLennan Companies are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Marsh McLennan 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 Marsh McLennan

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

The idea behind Mastercard and Marsh McLennan Companies 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.