Correlation Between MercadoLibre and European Residential

Can any of the company-specific risk be diversified away by investing in both MercadoLibre and European Residential 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 European Residential into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MercadoLibre and European Residential Real, you can compare the effects of market volatilities on MercadoLibre and European Residential 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 European Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of MercadoLibre and European Residential.

Diversification Opportunities for MercadoLibre and European Residential

-0.62

Correlation Coefficient

MercadoLibre  European Residential

Excellent diversification

The 3 months correlation between MercadoLibre and European is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding MercadoLibre and European Residential Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on European Residential Real 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 European Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of European Residential Real has no effect on the direction of MercadoLibre i.e., MercadoLibre and European Residential go up and down completely randomly.

Pair Corralation between MercadoLibre and European Residential

Given the investment horizon of 90 days MercadoLibre is expected to under-perform the European Residential. In addition to that, MercadoLibre is 1.62 times more volatile than European Residential Real. It trades about -0.11 of its total potential returns per unit of risk. European Residential Real is currently generating about 0.1 per unit of volatility. If you would invest  228.00  in European Residential Real on March 28, 2024 and sell it today you would earn a total of  5.00  from holding European Residential Real or generate 2.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	91.3%
Values	Daily Returns

MercadoLibre  vs.  European Residential Real

MercadoLibre

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MercadoLibre are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady essential indicators, MercadoLibre may actually be approaching a critical reversion point that can send shares even higher in July 2024.

European Residential Real

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days European Residential Real has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, European Residential is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with MercadoLibre and European Residential

The main advantage of trading using opposite MercadoLibre and European Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MercadoLibre position performs unexpectedly, European Residential 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 European Residential will offset losses from the drop in European Residential's long position.

The idea behind MercadoLibre and European Residential Real 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.