Correlation Between MercadoLibre and Big 5
Can any of the company-specific risk be diversified away by investing in both MercadoLibre and Big 5 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 MercadoLibre and Big 5 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MercadoLibre and Big 5 Sporting, you can compare the effects of market volatilities on MercadoLibre and Big 5 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 MercadoLibre with a short position of Big 5. Check out your portfolio center. Please also check ongoing floating volatility patterns of MercadoLibre and Big 5.
Diversification Opportunities for MercadoLibre and Big 5
0.05 | Correlation Coefficient |
Significant diversification
The 3 months correlation between MercadoLibre and Big is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding MercadoLibre and Big 5 Sporting in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big 5 Sporting and MercadoLibre 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 MercadoLibre are associated (or correlated) with Big 5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big 5 Sporting has no effect on the direction of MercadoLibre i.e., MercadoLibre and Big 5 go up and down completely randomly.
Pair Corralation between MercadoLibre and Big 5
Assuming the 90 days trading horizon MercadoLibre is expected to generate 0.68 times more return on investment than Big 5. However, MercadoLibre is 1.47 times less risky than Big 5. It trades about 0.07 of its potential returns per unit of risk. Big 5 Sporting is currently generating about -0.07 per unit of risk. If you would invest 83,700 in MercadoLibre on September 2, 2024 and sell it today you would earn a total of 101,300 from holding MercadoLibre or generate 121.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
MercadoLibre vs. Big 5 Sporting
Performance |
| Timeline |
| MercadoLibre |
| Big 5 Sporting |
MercadoLibre and Big 5 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MercadoLibre and Big 5
The main advantage of trading using opposite MercadoLibre and Big 5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MercadoLibre position performs unexpectedly, Big 5 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 Big 5 will offset losses from the drop in Big 5's long position.| MercadoLibre vs. AutoZone | MercadoLibre vs. Superior Plus Corp | MercadoLibre vs. NMI Holdings | MercadoLibre vs. Origin Agritech |
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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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