Correlation Between Synchrony Financial and Mastercard Incorporated

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

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

Diversification Opportunities for Synchrony Financial and Mastercard Incorporated

0.93

Correlation Coefficient

Synchrony Financial  Mastercard Incorporated

Almost no diversification

The 3 months correlation between Synchrony and Mastercard is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Synchrony Financial and Mastercard Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mastercard Incorporated and Synchrony Financial 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 Synchrony Financial are associated (or correlated) with Mastercard Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mastercard Incorporated has no effect on the direction of Synchrony Financial i.e., Synchrony Financial and Mastercard Incorporated go up and down completely randomly.

Pair Corralation between Synchrony Financial and Mastercard Incorporated

Assuming the 90 days trading horizon Synchrony Financial is expected to generate 1.67 times more return on investment than Mastercard Incorporated. However, Synchrony Financial is 1.67 times more volatile than Mastercard Incorporated. It trades about 0.09 of its potential returns per unit of risk. Mastercard Incorporated is currently generating about 0.08 per unit of risk. If you would invest  16,418  in Synchrony Financial on October 4, 2024 and sell it today you would earn a total of  23,832  from holding Synchrony Financial or generate 145.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.79%
Values	Daily Returns

Synchrony Financial  vs.  Mastercard Incorporated

Synchrony Financial

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Synchrony Financial are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Synchrony Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Mastercard Incorporated

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard Incorporated are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Mastercard Incorporated sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Synchrony Financial and Mastercard Incorporated

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

The idea behind Synchrony Financial and Mastercard Incorporated 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.