Correlation Between Mastercard and Bank of America

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

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

Diversification Opportunities for Mastercard and Bank of America

-0.31

Correlation Coefficient

Mastercard  Bank of America

Very good diversification

The 3 months correlation between Mastercard and Bank is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Mastercard and Bank of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of America 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 Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of America has no effect on the direction of Mastercard i.e., Mastercard and Bank of America go up and down completely randomly.

Pair Corralation between Mastercard and Bank of America

Allowing for the 90-day total investment horizon Mastercard is expected to generate 0.7 times more return on investment than Bank of America. However, Mastercard is 1.44 times less risky than Bank of America. It trades about 0.27 of its potential returns per unit of risk. Bank of America is currently generating about 0.13 per unit of risk. If you would invest  46,882  in Mastercard on June 23, 2024 and sell it today you would earn a total of  2,392  from holding Mastercard or generate 5.1% return on investment over 90 days.

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

Mastercard  vs.  Bank of America

Mastercard

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mastercard may actually be approaching a critical reversion point that can send shares even higher in October 2024.

Bank of America

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Bank of America is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Mastercard and Bank of America

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

The idea behind Mastercard and Bank of America 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.