Correlation Between Mastercard and Stifel Financial

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

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

Diversification Opportunities for Mastercard and Stifel Financial

0.2

Correlation Coefficient

Mastercard  Stifel Financial

Modest diversification

The 3 months correlation between Mastercard and Stifel is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard and Stifel Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stifel Financial 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 Stifel Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stifel Financial has no effect on the direction of Mastercard i.e., Mastercard and Stifel Financial go up and down completely randomly.

Pair Corralation between Mastercard and Stifel Financial

Allowing for the 90-day total investment horizon Mastercard is expected to generate 0.64 times more return on investment than Stifel Financial. However, Mastercard is 1.57 times less risky than Stifel Financial. It trades about 0.04 of its potential returns per unit of risk. Stifel Financial is currently generating about -0.09 per unit of risk. If you would invest  52,476  in Mastercard on December 28, 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	Very Weak
Accuracy	100.0%
Values	Daily Returns

Mastercard  vs.  Stifel Financial

Mastercard

Risk-Adjusted Performance

OK

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.

Stifel Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Stifel Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Mastercard and Stifel Financial

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

The idea behind Mastercard and Stifel Financial 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.