Correlation Between Tri Pointe and Mastercard

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

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

Diversification Opportunities for Tri Pointe and Mastercard

-0.21

Correlation Coefficient

Tri Pointe  Mastercard

Very good diversification

The 3 months correlation between Tri and Mastercard is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Tri Pointe Homes and Mastercard in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mastercard and Tri Pointe 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 Tri Pointe Homes 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 Tri Pointe i.e., Tri Pointe and Mastercard go up and down completely randomly.

Pair Corralation between Tri Pointe and Mastercard

Assuming the 90 days horizon Tri Pointe Homes is expected to under-perform the Mastercard. In addition to that, Tri Pointe is 1.47 times more volatile than Mastercard. It trades about -0.71 of its total potential returns per unit of risk. Mastercard is currently generating about 0.1 per unit of volatility. If you would invest  50,140  in Mastercard on October 4, 2024 and sell it today you would earn a total of  810.00  from holding Mastercard or generate 1.62% return on investment over 90 days.

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

Tri Pointe Homes  vs.  Mastercard

Tri Pointe Homes

Risk-Adjusted Performance

0 of 100

Very Weak

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

Mastercard

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Mastercard reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tri Pointe and Mastercard

The main advantage of trading using opposite Tri Pointe and Mastercard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tri Pointe 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 Tri Pointe Homes 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.