Correlation Between Mastercard and Yirendai

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

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

Diversification Opportunities for Mastercard and Yirendai

-0.19

Correlation Coefficient

Mastercard  Yirendai

Good diversification

The 3 months correlation between Mastercard and Yirendai is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard and Yirendai in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yirendai 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 Yirendai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yirendai has no effect on the direction of Mastercard i.e., Mastercard and Yirendai go up and down completely randomly.

Pair Corralation between Mastercard and Yirendai

Allowing for the 90-day total investment horizon Mastercard is expected to generate 4.25 times less return on investment than Yirendai. But when comparing it to its historical volatility, Mastercard is 4.75 times less risky than Yirendai. It trades about 0.09 of its potential returns per unit of risk. Yirendai is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  114.00  in Yirendai on September 18, 2024 and sell it today you would earn a total of  366.00  from holding Yirendai or generate 321.05% return on investment over 90 days.

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

Mastercard  vs.  Yirendai

Mastercard

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard are ranked lower than 9 (%) 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.

Yirendai

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Yirendai are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, Yirendai exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mastercard and Yirendai

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

The idea behind Mastercard and Yirendai 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.