Correlation Between Nomad Foods and MercadoLibre
Can any of the company-specific risk be diversified away by investing in both Nomad Foods and MercadoLibre 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 Nomad Foods and MercadoLibre into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nomad Foods and MercadoLibre, you can compare the effects of market volatilities on Nomad Foods and MercadoLibre 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 Nomad Foods with a short position of MercadoLibre. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nomad Foods and MercadoLibre.
Diversification Opportunities for Nomad Foods and MercadoLibre
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Nomad and MercadoLibre is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Nomad Foods and MercadoLibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MercadoLibre and Nomad Foods 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 Nomad Foods are associated (or correlated) with MercadoLibre. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MercadoLibre has no effect on the direction of Nomad Foods i.e., Nomad Foods and MercadoLibre go up and down completely randomly.
Pair Corralation between Nomad Foods and MercadoLibre
Assuming the 90 days trading horizon Nomad Foods is expected to generate 1.8 times less return on investment than MercadoLibre. But when comparing it to its historical volatility, Nomad Foods is 1.54 times less risky than MercadoLibre. It trades about 0.29 of its potential returns per unit of risk. MercadoLibre is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest 176,980 in MercadoLibre on November 25, 2024 and sell it today you would earn a total of 37,870 from holding MercadoLibre or generate 21.4% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Nomad Foods vs. MercadoLibre
Performance |
Timeline |
Nomad Foods |
MercadoLibre |
Nomad Foods and MercadoLibre Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Nomad Foods and MercadoLibre
The main advantage of trading using opposite Nomad Foods and MercadoLibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nomad Foods position performs unexpectedly, MercadoLibre 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 MercadoLibre will offset losses from the drop in MercadoLibre's long position.Nomad Foods vs. Linedata Services SA | ||
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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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