Correlation Between Regional Management and Mastercard

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

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

Diversification Opportunities for Regional Management and Mastercard

0.41

Correlation Coefficient

Regional Management  Mastercard

Very weak diversification

The 3 months correlation between Regional and Mastercard is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Regional Management Corp and Mastercard in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mastercard and Regional Management 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 Regional Management Corp 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 Regional Management i.e., Regional Management and Mastercard go up and down completely randomly.

Pair Corralation between Regional Management and Mastercard

Allowing for the 90-day total investment horizon Regional Management Corp is expected to under-perform the Mastercard. In addition to that, Regional Management is 1.66 times more volatile than Mastercard. It trades about -0.06 of its total potential returns per unit of risk. Mastercard is currently generating about 0.04 per unit of volatility. If you would invest  52,476  in Mastercard on December 30, 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	Weak
Accuracy	100.0%
Values	Daily Returns

Regional Management Corp  vs.  Mastercard

Regional Management Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Regional Management Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

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.

Pair Trading with Regional Management and Mastercard

The main advantage of trading using opposite Regional Management and Mastercard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Regional Management 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 Regional Management Corp 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 Global Correlations module to find global opportunities by holding instruments from different markets.