Correlation Between Mastercard and Consumer Portfolio

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

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

Diversification Opportunities for Mastercard and Consumer Portfolio

0.77

Correlation Coefficient

Mastercard  Consumer Portfolio

Poor diversification

The 3 months correlation between Mastercard and Consumer is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard and Consumer Portfolio Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Portfolio 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 Consumer Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Portfolio has no effect on the direction of Mastercard i.e., Mastercard and Consumer Portfolio go up and down completely randomly.

Pair Corralation between Mastercard and Consumer Portfolio

Allowing for the 90-day total investment horizon Mastercard is expected to generate 1.08 times less return on investment than Consumer Portfolio. But when comparing it to its historical volatility, Mastercard is 3.21 times less risky than Consumer Portfolio. It trades about 0.09 of its potential returns per unit of risk. Consumer Portfolio Services is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  853.00  in Consumer Portfolio Services on September 13, 2024 and sell it today you would earn a total of  241.00  from holding Consumer Portfolio Services or generate 28.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Mastercard  vs.  Consumer Portfolio Services

Mastercard

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent basic indicators, Mastercard may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Consumer Portfolio

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Portfolio Services are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Consumer Portfolio unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mastercard and Consumer Portfolio

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

The idea behind Mastercard and Consumer Portfolio Services 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.