Correlation Between Mastercard and Merchants Bancorp

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

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

Diversification Opportunities for Mastercard and Merchants Bancorp

0.88

Correlation Coefficient

Mastercard  Merchants Bancorp

Very poor diversification

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

Pair Corralation between Mastercard and Merchants Bancorp

Allowing for the 90-day total investment horizon Mastercard is expected to generate 0.61 times more return on investment than Merchants Bancorp. However, Mastercard is 1.63 times less risky than Merchants Bancorp. It trades about 0.04 of its potential returns per unit of risk. Merchants Bancorp is currently generating about 0.03 per unit of risk. If you would invest  52,476  in Mastercard on December 30, 2024 and sell it today you would earn a total of  1,585  from holding Mastercard or generate 3.02% return on investment over 90 days.

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

Mastercard  vs.  Merchants Bancorp

Mastercard

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Mastercard is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Merchants Bancorp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Merchants Bancorp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Merchants Bancorp is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Mastercard and Merchants Bancorp

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

The idea behind Mastercard and Merchants Bancorp 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.