Correlation Between Capital One and Mastercard Incorporated
Can any of the company-specific risk be diversified away by investing in both Capital One 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 Capital One and Mastercard Incorporated into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Capital One Financial and Mastercard Incorporated, you can compare the effects of market volatilities on Capital One 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 Capital One with a short position of Mastercard Incorporated. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital One and Mastercard Incorporated.
Diversification Opportunities for Capital One and Mastercard Incorporated
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Capital and Mastercard is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Mastercard Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mastercard Incorporated and Capital One 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 Capital One Financial 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 Capital One i.e., Capital One and Mastercard Incorporated go up and down completely randomly.
Pair Corralation between Capital One and Mastercard Incorporated
Assuming the 90 days trading horizon Capital One Financial is expected to generate 1.97 times more return on investment than Mastercard Incorporated. However, Capital One is 1.97 times more volatile than Mastercard Incorporated. It trades about 0.24 of its potential returns per unit of risk. Mastercard Incorporated is currently generating about 0.15 per unit of risk. If you would invest 329,677 in Capital One Financial on August 27, 2024 and sell it today you would earn a total of 53,309 from holding Capital One Financial or generate 16.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Capital One Financial vs. Mastercard Incorporated
Performance |
| Timeline |
| Capital One Financial |
| Mastercard Incorporated |
Capital One and Mastercard Incorporated Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital One and Mastercard Incorporated
The main advantage of trading using opposite Capital One and Mastercard Incorporated positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital One 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.The idea behind Capital One Financial and Mastercard Incorporated 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.| Mastercard Incorporated vs. Visa Inc | Mastercard Incorporated vs. Gentera SAB de | Mastercard Incorporated vs. Unifin Financiera S |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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