Correlation Between American Express and Mastercard Incorporated
Can any of the company-specific risk be diversified away by investing in both American Express and Mastercard Incorporated 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 American Express and Mastercard Incorporated into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Express and Mastercard Incorporated, you can compare the effects of market volatilities on American Express and Mastercard Incorporated 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 American Express with a short position of Mastercard Incorporated. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Express and Mastercard Incorporated.
Diversification Opportunities for American Express and Mastercard Incorporated
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between American and Mastercard is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding American Express and Mastercard Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mastercard Incorporated and American Express 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 American Express are associated (or correlated) with Mastercard Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mastercard Incorporated has no effect on the direction of American Express i.e., American Express and Mastercard Incorporated go up and down completely randomly.
Pair Corralation between American Express and Mastercard Incorporated
Assuming the 90 days trading horizon American Express is expected to generate 1.2 times more return on investment than Mastercard Incorporated. However, American Express is 1.2 times more volatile than Mastercard Incorporated. It trades about 0.2 of its potential returns per unit of risk. Mastercard Incorporated is currently generating about 0.19 per unit of risk. If you would invest 389,833 in American Express on August 24, 2024 and sell it today you would earn a total of 210,167 from holding American Express or generate 53.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Express vs. Mastercard Incorporated
Performance |
| Timeline |
| American Express |
| Mastercard Incorporated |
American Express and Mastercard Incorporated Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Express and Mastercard Incorporated
The main advantage of trading using opposite American Express and Mastercard Incorporated positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express position performs unexpectedly, Mastercard Incorporated 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 Mastercard Incorporated will offset losses from the drop in Mastercard Incorporated's long position.| American Express vs. New Oriental Education | American Express vs. McEwen Mining | American Express vs. DXC Technology | American Express vs. Cognizant Technology Solutions |
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Check out your portfolio center.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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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