Correlation Between Mastercard and Ares Capital

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

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

Diversification Opportunities for Mastercard and Ares Capital

0.88

Correlation Coefficient

Mastercard  Ares Capital

Very poor diversification

The 3 months correlation between Mastercard and Ares is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard and Ares Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Capital 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 Ares Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares Capital has no effect on the direction of Mastercard i.e., Mastercard and Ares Capital go up and down completely randomly.

Pair Corralation between Mastercard and Ares Capital

Allowing for the 90-day total investment horizon Mastercard is expected to generate 1.39 times more return on investment than Ares Capital. However, Mastercard is 1.39 times more volatile than Ares Capital. It trades about 0.17 of its potential returns per unit of risk. Ares Capital is currently generating about 0.18 per unit of risk. If you would invest  48,148  in Mastercard on September 2, 2024 and sell it today you would earn a total of  5,146  from holding Mastercard or generate 10.69% return on investment over 90 days.

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

Mastercard  vs.  Ares Capital

Mastercard

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mastercard may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Ares Capital

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ares Capital are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental indicators, Ares Capital may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Mastercard and Ares Capital

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

The idea behind Mastercard and Ares Capital 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.