Correlation Between Mastercard and FirstCash

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

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

Diversification Opportunities for Mastercard and FirstCash

0.78

Correlation Coefficient

Mastercard  FirstCash

Poor diversification

The 3 months correlation between Mastercard and FirstCash is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard and FirstCash in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FirstCash 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 FirstCash. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FirstCash has no effect on the direction of Mastercard i.e., Mastercard and FirstCash go up and down completely randomly.

Pair Corralation between Mastercard and FirstCash

Allowing for the 90-day total investment horizon Mastercard is expected to generate 0.73 times more return on investment than FirstCash. However, Mastercard is 1.38 times less risky than FirstCash. It trades about 0.1 of its potential returns per unit of risk. FirstCash is currently generating about 0.07 per unit of risk. If you would invest  28,698  in Mastercard on June 23, 2024 and sell it today you would earn a total of  20,576  from holding Mastercard or generate 71.7% return on investment over 90 days.

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

Mastercard  vs.  FirstCash

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.

FirstCash

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FirstCash are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal technical and fundamental indicators, FirstCash may actually be approaching a critical reversion point that can send shares even higher in October 2024.

Pair Trading with Mastercard and FirstCash

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

The idea behind Mastercard and FirstCash 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.