Correlation Between EBay and MercadoLibre
Can any of the company-specific risk be diversified away by investing in both EBay 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 EBay and MercadoLibre into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between eBay Inc and MercadoLibre, you can compare the effects of market volatilities on EBay 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 EBay with a short position of MercadoLibre. Check out your portfolio center. Please also check ongoing floating volatility patterns of EBay and MercadoLibre.
Diversification Opportunities for EBay and MercadoLibre
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between EBay and MercadoLibre is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding eBay Inc and MercadoLibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MercadoLibre and EBay 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 eBay 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 EBay i.e., EBay and MercadoLibre go up and down completely randomly.
Pair Corralation between EBay and MercadoLibre
Assuming the 90 days trading horizon eBay Inc is expected to generate 0.79 times more return on investment than MercadoLibre. However, eBay Inc is 1.26 times less risky than MercadoLibre. It trades about 0.05 of its potential returns per unit of risk. MercadoLibre is currently generating about -0.14 per unit of risk. If you would invest 126,299 in eBay Inc on September 13, 2024 and sell it today you would earn a total of 1,901 from holding eBay Inc or generate 1.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
eBay Inc vs. MercadoLibre
Performance |
| Timeline |
| eBay Inc |
| MercadoLibre |
EBay and MercadoLibre Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with EBay and MercadoLibre
The main advantage of trading using opposite EBay and MercadoLibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EBay 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.| EBay vs. GMxico Transportes SAB | EBay vs. Genworth Financial | EBay vs. Applied Materials | EBay vs. Grupo Sports World |
| MercadoLibre vs. GMxico Transportes SAB | MercadoLibre vs. KB Home | MercadoLibre vs. McEwen Mining | MercadoLibre vs. Hoteles City Express |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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