Correlation Between Western Union and Mastercard Incorporated

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

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

Diversification Opportunities for Western Union and Mastercard Incorporated

-0.83

Correlation Coefficient

Western Union  Mastercard Incorporated

Pay attention - limited upside

The 3 months correlation between Western and Mastercard is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding The Western Union and Mastercard Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mastercard Incorporated and Western Union 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 The Western Union 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 Western Union i.e., Western Union and Mastercard Incorporated go up and down completely randomly.

Pair Corralation between Western Union and Mastercard Incorporated

Assuming the 90 days horizon Western Union is expected to generate 4.78 times less return on investment than Mastercard Incorporated. But when comparing it to its historical volatility, The Western Union is 1.07 times less risky than Mastercard Incorporated. It trades about 0.03 of its potential returns per unit of risk. Mastercard Incorporated is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  774,417  in Mastercard Incorporated on September 24, 2024 and sell it today you would earn a total of  283,709  from holding Mastercard Incorporated or generate 36.64% return on investment over 90 days.

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

The Western Union  vs.  Mastercard Incorporated

Western Union

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Western Union 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 strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Mastercard Incorporated

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard Incorporated are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Mastercard Incorporated showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Union and Mastercard Incorporated

The main advantage of trading using opposite Western Union and Mastercard Incorporated positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Union 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 The Western Union 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.