Correlation Between Best Buy and MercadoLibre
Can any of the company-specific risk be diversified away by investing in both Best Buy 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 Best Buy and MercadoLibre into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Best Buy Co and MercadoLibre, you can compare the effects of market volatilities on Best Buy 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 Best Buy with a short position of MercadoLibre. Check out your portfolio center. Please also check ongoing floating volatility patterns of Best Buy and MercadoLibre.
Diversification Opportunities for Best Buy and MercadoLibre
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Best and MercadoLibre is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Best Buy Co and MercadoLibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MercadoLibre and Best Buy 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 Best Buy Co 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 Best Buy i.e., Best Buy and MercadoLibre go up and down completely randomly.
Pair Corralation between Best Buy and MercadoLibre
Assuming the 90 days trading horizon Best Buy Co is expected to generate 0.26 times more return on investment than MercadoLibre. However, Best Buy Co is 3.86 times less risky than MercadoLibre. It trades about -0.1 of its potential returns per unit of risk. MercadoLibre is currently generating about -0.14 per unit of risk. If you would invest 186,000 in Best Buy Co on September 13, 2024 and sell it today you would lose (2,300) from holding Best Buy Co or give up 1.24% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Best Buy Co vs. MercadoLibre
Performance |
| Timeline |
| Best Buy |
| MercadoLibre |
Best Buy and MercadoLibre Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Best Buy and MercadoLibre
The main advantage of trading using opposite Best Buy and MercadoLibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Best Buy 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.| Best Buy vs. Micron Technology | Best Buy vs. CVS Health | Best Buy vs. The Bank of | Best Buy vs. Verizon Communications |
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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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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