Correlation Between Compania and MercadoLibre
Can any of the company-specific risk be diversified away by investing in both Compania 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 Compania and MercadoLibre into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Compania de Transporte and MercadoLibre, you can compare the effects of market volatilities on Compania 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 Compania with a short position of MercadoLibre. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compania and MercadoLibre.
Diversification Opportunities for Compania and MercadoLibre
-0.8 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Compania and MercadoLibre is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Compania de Transporte and MercadoLibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MercadoLibre and Compania 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 Compania de Transporte 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 Compania i.e., Compania and MercadoLibre go up and down completely randomly.
Pair Corralation between Compania and MercadoLibre
Assuming the 90 days trading horizon Compania de Transporte is expected to generate 1.35 times more return on investment than MercadoLibre. However, Compania is 1.35 times more volatile than MercadoLibre. It trades about 0.32 of its potential returns per unit of risk. MercadoLibre is currently generating about -0.12 per unit of risk. If you would invest 181,000 in Compania de Transporte on September 19, 2024 and sell it today you would earn a total of 122,500 from holding Compania de Transporte or generate 67.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 97.62% |
| Values | Daily Returns |
Compania de Transporte vs. MercadoLibre
Performance |
| Timeline |
| Compania de Transporte |
| MercadoLibre |
Compania and MercadoLibre Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Compania and MercadoLibre
The main advantage of trading using opposite Compania and MercadoLibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Compania 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.| Compania vs. Edesa Holding SA | Compania vs. Vista Energy, SAB | Compania vs. United States Steel | Compania vs. Pfizer Inc |
| MercadoLibre vs. Harmony Gold Mining | MercadoLibre vs. Telecom Argentina | MercadoLibre vs. Transportadora de Gas | MercadoLibre vs. Agrometal SAI |
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 Directory module to find actively traded commodities issued by global exchanges.
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