Correlation Between Mastercard and GM

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Can any of the company-specific risk be diversified away by investing in both Mastercard and GM 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 Mastercard and GM into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mastercard and General Motors, you can compare the effects of market volatilities on Mastercard and GM 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 Mastercard with a short position of GM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mastercard and GM.

Diversification Opportunities for Mastercard and GM

0.89
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Mastercard and GM is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors and Mastercard 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 Mastercard are associated (or correlated) with GM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Motors has no effect on the direction of Mastercard i.e., Mastercard and GM go up and down completely randomly.

Pair Corralation between Mastercard and GM

Allowing for the 90-day total investment horizon Mastercard is expected to generate 16.31 times less return on investment than GM. But when comparing it to its historical volatility, Mastercard is 1.81 times less risky than GM. It trades about 0.04 of its potential returns per unit of risk. General Motors is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  4,006  in General Motors on December 29, 2023 and sell it today you would earn a total of  529.00  from holding General Motors or generate 13.21% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy95.65%
ValuesDaily Returns

Mastercard  vs.  General Motors

 Performance 
       Timeline  
Mastercard 

Risk-Adjusted Performance

16 of 100

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

Risk-Adjusted Performance

17 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

Mastercard and GM Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Mastercard and GM

The main advantage of trading using opposite Mastercard and GM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mastercard position performs unexpectedly, GM 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 GM will offset losses from the drop in GM's long position.
The idea behind Mastercard and General Motors 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.
Check out your portfolio center.
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .

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