Correlation Between Global E and MercadoLibre
Can any of the company-specific risk be diversified away by investing in both Global E 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 Global E and MercadoLibre into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Global E Online and MercadoLibre, you can compare the effects of market volatilities on Global E 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 Global E with a short position of MercadoLibre. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global E and MercadoLibre.
Diversification Opportunities for Global E and MercadoLibre
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Global and MercadoLibre is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Global E Online and MercadoLibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MercadoLibre and Global E 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 Global E Online 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 Global E i.e., Global E and MercadoLibre go up and down completely randomly.
Pair Corralation between Global E and MercadoLibre
Given the investment horizon of 90 days Global E Online is expected to generate 1.4 times more return on investment than MercadoLibre. However, Global E is 1.4 times more volatile than MercadoLibre. It trades about 0.05 of its potential returns per unit of risk. MercadoLibre is currently generating about 0.06 per unit of risk. If you would invest 1,709 in Global E Online on January 31, 2024 and sell it today you would earn a total of 1,654 from holding Global E Online or generate 96.78% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Global E Online vs. MercadoLibre
Performance |
Timeline |
Global E Online |
MercadoLibre |
Global E and MercadoLibre Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Global E and MercadoLibre
The main advantage of trading using opposite Global E and MercadoLibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global E 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.Global E vs. LesliesInc | Global E vs. Sally Beauty Holdings | Global E vs. ODP Corp | Global E vs. 1 800 FLOWERSCOM |
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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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