Correlation Between Mastercard and Stepstone

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

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

Diversification Opportunities for Mastercard and Stepstone

0.9

Correlation Coefficient

Mastercard  Stepstone

Almost no diversification

The 3 months correlation between Mastercard and Stepstone is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard and Stepstone Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepstone Group 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 Stepstone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stepstone Group has no effect on the direction of Mastercard i.e., Mastercard and Stepstone go up and down completely randomly.

Pair Corralation between Mastercard and Stepstone

Allowing for the 90-day total investment horizon Mastercard is expected to generate 2.08 times less return on investment than Stepstone. But when comparing it to its historical volatility, Mastercard is 2.29 times less risky than Stepstone. It trades about 0.17 of its potential returns per unit of risk. Stepstone Group is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  5,379  in Stepstone Group on September 1, 2024 and sell it today you would earn a total of  1,210  from holding Stepstone Group or generate 22.49% return on investment over 90 days.

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

Mastercard  vs.  Stepstone Group

Mastercard

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard are ranked lower than 13 (%) 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 December 2024.

Stepstone Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Stepstone Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal technical and fundamental indicators, Stepstone reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mastercard and Stepstone

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

The idea behind Mastercard and Stepstone Group 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.