Correlation Between Credit Acceptance and Mastercard
Can any of the company-specific risk be diversified away by investing in both Credit Acceptance and Mastercard 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 Credit Acceptance and Mastercard into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Credit Acceptance and Mastercard, you can compare the effects of market volatilities on Credit Acceptance and Mastercard 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 Credit Acceptance with a short position of Mastercard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Credit Acceptance and Mastercard.
Diversification Opportunities for Credit Acceptance and Mastercard
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Credit and Mastercard is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Credit Acceptance and Mastercard in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mastercard and Credit Acceptance 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 Credit Acceptance are associated (or correlated) with Mastercard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mastercard has no effect on the direction of Credit Acceptance i.e., Credit Acceptance and Mastercard go up and down completely randomly.
Pair Corralation between Credit Acceptance and Mastercard
Given the investment horizon of 90 days Credit Acceptance is expected to under-perform the Mastercard. In addition to that, Credit Acceptance is 2.26 times more volatile than Mastercard. It trades about -0.17 of its total potential returns per unit of risk. Mastercard is currently generating about -0.09 per unit of volatility. If you would invest 46,538 in Mastercard on February 12, 2024 and sell it today you would lose (840.00) from holding Mastercard or give up 1.8% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Credit Acceptance vs. Mastercard
Performance |
| Timeline |
| Credit Acceptance |
| Mastercard |
Credit Acceptance and Mastercard Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Credit Acceptance and Mastercard
The main advantage of trading using opposite Credit Acceptance and Mastercard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Credit Acceptance position performs unexpectedly, Mastercard 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 will offset losses from the drop in Mastercard's long position.| Credit Acceptance vs. Synchrony Financial | Credit Acceptance vs. Western Union Co | Credit Acceptance vs. Bread Financial Holdings | Credit Acceptance vs. Mastercard |
| Mastercard vs. American Express | Mastercard vs. Capital One Financial | Mastercard vs. Upstart HoldingsInc | Mastercard vs. Ally 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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