Correlation Between Amazon and MercadoLibre,

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Can any of the company-specific risk be diversified away by investing in both Amazon 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 Amazon and MercadoLibre, into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and MercadoLibre,, you can compare the effects of market volatilities on Amazon 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 Amazon with a short position of MercadoLibre,. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and MercadoLibre,.

Diversification Opportunities for Amazon and MercadoLibre,

AmazonMercadoLibre,Diversified AwayAmazonMercadoLibre,Diversified Away100%
-0.62
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Amazon and MercadoLibre, is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and MercadoLibre, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MercadoLibre, and Amazon 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 Amazon Inc 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 Amazon i.e., Amazon and MercadoLibre, go up and down completely randomly.

Pair Corralation between Amazon and MercadoLibre,

Assuming the 90 days trading horizon Amazon Inc is expected to generate 1.18 times more return on investment than MercadoLibre,. However, Amazon is 1.18 times more volatile than MercadoLibre,. It trades about 0.17 of its potential returns per unit of risk. MercadoLibre, is currently generating about 0.08 per unit of risk. If you would invest  20,000  in Amazon Inc on September 19, 2024 and sell it today you would earn a total of  162,000  from holding Amazon Inc or generate 810.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy99.79%
ValuesDaily Returns

Amazon Inc  vs.  MercadoLibre,

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -10-505
JavaScript chart by amCharts 3.21.15AMZN MELID
       Timeline  
Amazon Inc 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Amazon sustained solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec1,5001,5501,6001,6501,7001,7501,8001,8501,900
MercadoLibre, 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days MercadoLibre, has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec15.51616.51717.51818.5

Amazon and MercadoLibre, Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-5.93-4.44-2.95-1.460.01.573.154.726.29 0.020.040.060.080.10
JavaScript chart by amCharts 3.21.15AMZN MELID
       Returns  

Pair Trading with Amazon and MercadoLibre,

The main advantage of trading using opposite Amazon and MercadoLibre, positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon 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.
The idea behind Amazon Inc and MercadoLibre, 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.
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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