Correlation Between Mastercard and Zip Co

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

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

Diversification Opportunities for Mastercard and Zip Co

-0.7

Correlation Coefficient

Mastercard  Zip Co

Excellent diversification

The 3 months correlation between Mastercard and Zip is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard and Zip Co Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zip Co Limited 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 Zip Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zip Co Limited has no effect on the direction of Mastercard i.e., Mastercard and Zip Co go up and down completely randomly.

Pair Corralation between Mastercard and Zip Co

Allowing for the 90-day total investment horizon Mastercard is expected to generate 0.21 times more return on investment than Zip Co. However, Mastercard is 4.7 times less risky than Zip Co. It trades about 0.13 of its potential returns per unit of risk. Zip Co Limited is currently generating about -0.08 per unit of risk. If you would invest  53,056  in Mastercard on November 30, 2024 and sell it today you would earn a total of  4,575  from holding Mastercard or generate 8.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.77%
Values	Daily Returns

Mastercard  vs.  Zip Co Limited

Mastercard

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard are ranked lower than 10 (%) 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 March 2025.

Zip Co Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Zip Co Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Mastercard and Zip Co

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

The idea behind Mastercard and Zip Co Limited 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.