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

-0.75

Correlation Coefficient

EBay  MercadoLibre

Pay attention - limited upside

The 3 months correlation between EBay and MercadoLibre is -0.75. 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

Given the investment horizon of 90 days eBay Inc is expected to generate 0.75 times more return on investment than MercadoLibre. However, eBay Inc is 1.34 times less risky than MercadoLibre. It trades about 0.18 of its potential returns per unit of risk. MercadoLibre is currently generating about -0.16 per unit of risk. If you would invest  4,764  in eBay Inc on January 29, 2024 and sell it today you would earn a total of  438.00  from holding eBay Inc or generate 9.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

eBay Inc  vs.  MercadoLibre

eBay Inc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in eBay Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, EBay showed solid returns over the last few months and may actually be approaching a breakup point.

MercadoLibre

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MercadoLibre has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's essential indicators remain fairly strong which may send shares a bit higher in May 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

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.

The idea behind eBay Inc and MercadoLibre pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.