Correlation Between Visa and Mastercard Incorporated

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

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

Diversification Opportunities for Visa and Mastercard Incorporated

0.95

Correlation Coefficient

Visa  Mastercard Incorporated

Almost no diversification

The 3 months correlation between Visa and Mastercard is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Visa Inc and Mastercard Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mastercard Incorporated and Visa 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 Visa Inc 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 Visa i.e., Visa and Mastercard Incorporated go up and down completely randomly.

Pair Corralation between Visa and Mastercard Incorporated

Given the investment horizon of 90 days Visa Inc is expected to generate 1.07 times more return on investment than Mastercard Incorporated. However, Visa is 1.07 times more volatile than Mastercard Incorporated. It trades about 0.08 of its potential returns per unit of risk. Mastercard Incorporated is currently generating about 0.08 per unit of risk. If you would invest  398,437  in Visa Inc on September 23, 2024 and sell it today you would earn a total of  240,063  from holding Visa Inc or generate 60.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Visa Inc  vs.  Mastercard Incorporated

Visa Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

Mastercard Incorporated

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard Incorporated are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Mastercard Incorporated may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Visa and Mastercard Incorporated

The main advantage of trading using opposite Visa and Mastercard Incorporated positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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 Visa Inc 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.