Correlation Between Mastercard and General American

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

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

Diversification Opportunities for Mastercard and General American

0.32

Correlation Coefficient

Mastercard  General American

Weak diversification

The 3 months correlation between Mastercard and General is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard and General American Investors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General American Inv 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 General American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General American Inv has no effect on the direction of Mastercard i.e., Mastercard and General American go up and down completely randomly.

Pair Corralation between Mastercard and General American

Allowing for the 90-day total investment horizon Mastercard is expected to generate 1.79 times more return on investment than General American. However, Mastercard is 1.79 times more volatile than General American Investors. It trades about 0.09 of its potential returns per unit of risk. General American Investors is currently generating about -0.02 per unit of risk. If you would invest  52,476  in Mastercard on December 29, 2024 and sell it today you would earn a total of  3,281  from holding Mastercard or generate 6.25% return on investment over 90 days.

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

Mastercard  vs.  General American Investors

Mastercard

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard are ranked lower than 7 (%) 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.

General American Inv

Risk-Adjusted Performance

Very Weak

Over the last 90 days General American Investors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, General American is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Mastercard and General American

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

The idea behind Mastercard and General American Investors 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.