Correlation Between Mastercard and China Water

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

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

Diversification Opportunities for Mastercard and China Water

-0.93

Correlation Coefficient

Mastercard  China Water

Pay attention - limited upside

The 3 months correlation between Mastercard and China is -0.93. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard and China Water Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Water Industry 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 China Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Water Industry has no effect on the direction of Mastercard i.e., Mastercard and China Water go up and down completely randomly.

Pair Corralation between Mastercard and China Water

Assuming the 90 days horizon Mastercard is expected to generate 20.5 times less return on investment than China Water. But when comparing it to its historical volatility, Mastercard is 40.49 times less risky than China Water. It trades about 0.08 of its potential returns per unit of risk. China Water Industry is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  12.00  in China Water Industry on September 24, 2024 and sell it today you would lose (8.01) from holding China Water Industry or give up 66.75% of portfolio value over 90 days.

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

Mastercard  vs.  China Water Industry

Mastercard

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Mastercard reported solid returns over the last few months and may actually be approaching a breakup point.

China Water Industry

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Water Industry has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Mastercard and China Water

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

The idea behind Mastercard and China Water Industry 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.