Correlation Between Mastercard Incorporated and Western Union

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

By analyzing existing cross correlation between Mastercard Incorporated and The Western Union, you can compare the effects of market volatilities on Mastercard Incorporated and Western Union 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 Incorporated with a short position of Western Union. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mastercard Incorporated and Western Union.

Diversification Opportunities for Mastercard Incorporated and Western Union

-0.61

Correlation Coefficient

Mastercard Incorporated  Western Union

Excellent diversification

The 3 months correlation between Mastercard and Western is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard Incorporated and The Western Union in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Union and Mastercard Incorporated 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 Incorporated are associated (or correlated) with Western Union. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Union has no effect on the direction of Mastercard Incorporated i.e., Mastercard Incorporated and Western Union go up and down completely randomly.

Pair Corralation between Mastercard Incorporated and Western Union

Assuming the 90 days horizon Mastercard Incorporated is expected to generate 0.96 times more return on investment than Western Union. However, Mastercard Incorporated is 1.04 times less risky than Western Union. It trades about 0.14 of its potential returns per unit of risk. The Western Union is currently generating about -0.01 per unit of risk. If you would invest  958,341  in Mastercard Incorporated on September 4, 2024 and sell it today you would earn a total of  121,159  from holding Mastercard Incorporated or generate 12.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Mastercard Incorporated  vs.  The Western Union

Mastercard Incorporated

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard Incorporated are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Mastercard Incorporated showed solid returns over the last few months and may actually be approaching a breakup point.

Western Union

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Western Union has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Western Union is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mastercard Incorporated and Western Union

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

The idea behind Mastercard Incorporated and The Western Union 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 CEOs Directory module to screen CEOs from public companies around the world.