Correlation Between Mastercard and SLM Corp

Can any of the company-specific risk be diversified away by investing in both Mastercard and SLM Corp 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 SLM Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Mastercard and SLM Corp, you can compare the effects of market volatilities on Mastercard and SLM Corp 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 SLM Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mastercard and SLM Corp.

Diversification Opportunities for Mastercard and SLM Corp

0.05

Correlation Coefficient

Mastercard  SLM Corp

Significant diversification

The 3 months correlation between Mastercard and SLM is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard and SLM Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SLM Corp 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 SLM Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SLM Corp has no effect on the direction of Mastercard i.e., Mastercard and SLM Corp go up and down completely randomly.

Pair Corralation between Mastercard and SLM Corp

Allowing for the 90-day total investment horizon Mastercard is expected to under-perform the SLM Corp. But the stock apears to be less risky and, when comparing its historical volatility, Mastercard is 1.78 times less risky than SLM Corp. The stock trades about -0.13 of its potential returns per unit of risk. The SLM Corp is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  2,074  in SLM Corp on March 14, 2024 and sell it today you would lose (63.00) from holding SLM Corp or give up 3.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Mastercard  vs.  SLM Corp

Mastercard

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mastercard has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

SLM Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SLM Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, SLM Corp is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Mastercard and SLM Corp

The main advantage of trading using opposite Mastercard and SLM Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mastercard position performs unexpectedly, SLM Corp 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 SLM Corp will offset losses from the drop in SLM Corp's long position.

The idea behind Mastercard and SLM Corp 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.

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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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.