Correlation Between Mastercard and Bread Financial

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

By analyzing existing cross correlation between Mastercard and Bread Financial Holdings, you can compare the effects of market volatilities on Mastercard and Bread Financial 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 Bread Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mastercard and Bread Financial.

Diversification Opportunities for Mastercard and Bread Financial

0.46

Correlation Coefficient

Mastercard  Bread Financial

Very weak diversification

The 3 months correlation between Mastercard and Bread is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard and Bread Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bread Financial Holdings 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 Bread Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bread Financial Holdings has no effect on the direction of Mastercard i.e., Mastercard and Bread Financial go up and down completely randomly.

Pair Corralation between Mastercard and Bread Financial

Allowing for the 90-day total investment horizon Mastercard is expected to generate 1.33 times less return on investment than Bread Financial. But when comparing it to its historical volatility, Mastercard is 2.52 times less risky than Bread Financial. It trades about 0.1 of its potential returns per unit of risk. Bread Financial Holdings is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,066  in Bread Financial Holdings on June 23, 2024 and sell it today you would earn a total of  2,181  from holding Bread Financial Holdings or generate 71.14% return on investment over 90 days.

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

Mastercard  vs.  Bread Financial Holdings

Mastercard

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mastercard may actually be approaching a critical reversion point that can send shares even higher in October 2024.

Bread Financial Holdings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bread Financial Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal technical and fundamental indicators, Bread Financial demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mastercard and Bread Financial

The main advantage of trading using opposite Mastercard and Bread Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mastercard position performs unexpectedly, Bread Financial 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 Bread Financial will offset losses from the drop in Bread Financial's long position.

The idea behind Mastercard and Bread Financial Holdings 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.