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

0.23

Correlation Coefficient

Western Union  Mastercard Incorporated

Modest diversification

The 3 months correlation between Western and Mastercard is 0.23. 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 trading horizon The Western Union is expected to generate 6.59 times more return on investment than Mastercard Incorporated. However, Western Union is 6.59 times more volatile than Mastercard Incorporated. It trades about 0.05 of its potential returns per unit of risk. Mastercard Incorporated is currently generating about 0.09 per unit of risk. If you would invest  5,797  in The Western Union on October 5, 2024 and sell it today you would earn a total of  615.00  from holding The Western Union or generate 10.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	78.57%
Values	Daily Returns

The Western Union  vs.  Mastercard Incorporated

Western Union

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Western Union are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Western Union is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Mastercard Incorporated

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard Incorporated are ranked lower than 15 (%) 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 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..