Correlation Between Mastercard and PayPal Holdings
Can any of the company-specific risk be diversified away by investing in both Mastercard and PayPal Holdings 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 PayPal Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mastercard and PayPal Holdings, you can compare the effects of market volatilities on Mastercard and PayPal Holdings 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 PayPal Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mastercard and PayPal Holdings.
Diversification Opportunities for Mastercard and PayPal Holdings
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Mastercard and PayPal is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard and PayPal Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PayPal Holdings 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 PayPal Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PayPal Holdings has no effect on the direction of Mastercard i.e., Mastercard and PayPal Holdings go up and down completely randomly.
Pair Corralation between Mastercard and PayPal Holdings
Allowing for the 90-day total investment horizon Mastercard is expected to generate 1.25 times less return on investment than PayPal Holdings. But when comparing it to its historical volatility, Mastercard is 1.76 times less risky than PayPal Holdings. It trades about 0.18 of its potential returns per unit of risk. PayPal Holdings is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 7,813 in PayPal Holdings on November 2, 2024 and sell it today you would earn a total of 1,144 from holding PayPal Holdings or generate 14.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Mastercard vs. PayPal Holdings
Performance |
| Timeline |
| Mastercard |
| PayPal Holdings |
Mastercard and PayPal Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Mastercard and PayPal Holdings
The main advantage of trading using opposite Mastercard and PayPal Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mastercard position performs unexpectedly, PayPal Holdings 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 PayPal Holdings will offset losses from the drop in PayPal Holdings' long position.| Mastercard vs. American Express | Mastercard vs. PayPal Holdings | Mastercard vs. Upstart Holdings | Mastercard vs. Capital One Financial |
| PayPal Holdings vs. SoFi Technologies | PayPal Holdings vs. Visa Class A | PayPal Holdings vs. Mastercard | PayPal Holdings vs. Capital One Financial |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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