Correlation Between Mastercard and Redwood Trust
Can any of the company-specific risk be diversified away by investing in both Mastercard and Redwood Trust 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 Redwood Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mastercard and Redwood Trust, you can compare the effects of market volatilities on Mastercard and Redwood Trust 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 Redwood Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mastercard and Redwood Trust.
Diversification Opportunities for Mastercard and Redwood Trust
-0.33 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Mastercard and Redwood is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard and Redwood Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwood Trust 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 Redwood Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redwood Trust has no effect on the direction of Mastercard i.e., Mastercard and Redwood Trust go up and down completely randomly.
Pair Corralation between Mastercard and Redwood Trust
Allowing for the 90-day total investment horizon Mastercard is expected to generate 0.54 times more return on investment than Redwood Trust. However, Mastercard is 1.86 times less risky than Redwood Trust. It trades about 0.09 of its potential returns per unit of risk. Redwood Trust is currently generating about 0.02 per unit of risk. If you would invest 34,472 in Mastercard on August 30, 2024 and sell it today you would earn a total of 18,766 from holding Mastercard or generate 54.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Mastercard vs. Redwood Trust
Performance |
| Timeline |
| Mastercard |
| Redwood Trust |
Mastercard and Redwood Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Mastercard and Redwood Trust
The main advantage of trading using opposite Mastercard and Redwood Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mastercard position performs unexpectedly, Redwood Trust 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 Redwood Trust will offset losses from the drop in Redwood Trust's long position.| Mastercard vs. American Express | Mastercard vs. PayPal Holdings | Mastercard vs. Upstart Holdings | Mastercard vs. Capital One Financial |
| Redwood Trust vs. Ellington Residential Mortgage | Redwood Trust vs. Ellington Financial | Redwood Trust vs. Ares Commercial Real | Redwood Trust vs. Cherry Hill Mortgage |
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 Stocks Directory module to find actively traded stocks across global markets.
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