Correlation Between PayPal Holdings and Mastercard

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

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

Diversification Opportunities for PayPal Holdings and Mastercard

-0.6

Correlation Coefficient

PayPal Holdings  Mastercard

Excellent diversification

The 3 months correlation between PayPal and Mastercard is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding PayPal Holdings and Mastercard in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mastercard and PayPal Holdings 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 PayPal Holdings are associated (or correlated) with Mastercard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mastercard has no effect on the direction of PayPal Holdings i.e., PayPal Holdings and Mastercard go up and down completely randomly.

Pair Corralation between PayPal Holdings and Mastercard

Given the investment horizon of 90 days PayPal Holdings is expected to under-perform the Mastercard. In addition to that, PayPal Holdings is 2.42 times more volatile than Mastercard. It trades about -0.09 of its total potential returns per unit of risk. Mastercard is currently generating about 0.1 per unit of volatility. If you would invest  53,158  in Mastercard on November 27, 2024 and sell it today you would earn a total of  3,245  from holding Mastercard or generate 6.1% return on investment over 90 days.

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

PayPal Holdings  vs.  Mastercard

PayPal Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days PayPal Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in March 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Mastercard

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard are ranked lower than 7 (%) 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.

Pair Trading with PayPal Holdings and Mastercard

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

The idea behind PayPal Holdings and Mastercard 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.