Correlation Between Mastercard Incorporated and Essex Property

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

By analyzing existing cross correlation between Mastercard Incorporated and Essex Property Trust, you can compare the effects of market volatilities on Mastercard Incorporated and Essex Property 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 Incorporated with a short position of Essex Property. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mastercard Incorporated and Essex Property.

Diversification Opportunities for Mastercard Incorporated and Essex Property

-0.64

Correlation Coefficient

Mastercard Incorporated  Essex Property

Excellent diversification

The 3 months correlation between Mastercard and Essex is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard Incorporated and Essex Property Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essex Property Trust and Mastercard Incorporated 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 Incorporated are associated (or correlated) with Essex Property. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essex Property Trust has no effect on the direction of Mastercard Incorporated i.e., Mastercard Incorporated and Essex Property go up and down completely randomly.

Pair Corralation between Mastercard Incorporated and Essex Property

Assuming the 90 days trading horizon Mastercard Incorporated is expected to under-perform the Essex Property. In addition to that, Mastercard Incorporated is 1.01 times more volatile than Essex Property Trust. It trades about -0.05 of its total potential returns per unit of risk. Essex Property Trust is currently generating about 0.0 per unit of volatility. If you would invest  17,567  in Essex Property Trust on December 30, 2024 and sell it today you would lose (159.00) from holding Essex Property Trust or give up 0.91% of portfolio value over 90 days.

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

Mastercard Incorporated  vs.  Essex Property Trust

Mastercard Incorporated

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mastercard Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Mastercard Incorporated is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Essex Property Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Essex Property Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Essex Property is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mastercard Incorporated and Essex Property

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

The idea behind Mastercard Incorporated and Essex Property Trust 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.