Correlation Between Mastercard and Franklin Resources

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

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

Diversification Opportunities for Mastercard and Franklin Resources

-0.01

Correlation Coefficient

Mastercard  Franklin Resources

Good diversification

The 3 months correlation between Mastercard and Franklin is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard and Franklin Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Resources 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 Franklin Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Resources has no effect on the direction of Mastercard i.e., Mastercard and Franklin Resources go up and down completely randomly.

Pair Corralation between Mastercard and Franklin Resources

Allowing for the 90-day total investment horizon Mastercard is expected to generate 0.5 times more return on investment than Franklin Resources. However, Mastercard is 2.0 times less risky than Franklin Resources. It trades about 0.13 of its potential returns per unit of risk. Franklin Resources is currently generating about -0.06 per unit of risk. If you would invest  53,056  in Mastercard on December 1, 2024 and sell it today you would earn a total of  4,575  from holding Mastercard or generate 8.62% return on investment over 90 days.

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

Mastercard  vs.  Franklin Resources

Mastercard

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard are ranked lower than 10 (%) 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 April 2025.

Franklin Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Franklin Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Mastercard and Franklin Resources

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

The idea behind Mastercard and Franklin Resources 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.