Correlation Between MercadoLibre and Mesirow Financial

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

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

Diversification Opportunities for MercadoLibre and Mesirow Financial

0.91

Correlation Coefficient

MercadoLibre  Mesirow Financial

Almost no diversification

The 3 months correlation between MercadoLibre and Mesirow is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding MercadoLibre and Mesirow Financial Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mesirow Financial Small 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 Mesirow Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mesirow Financial Small has no effect on the direction of MercadoLibre i.e., MercadoLibre and Mesirow Financial go up and down completely randomly.

Pair Corralation between MercadoLibre and Mesirow Financial

Given the investment horizon of 90 days MercadoLibre is expected to generate 1.81 times more return on investment than Mesirow Financial. However, MercadoLibre is 1.81 times more volatile than Mesirow Financial Small. It trades about 0.08 of its potential returns per unit of risk. Mesirow Financial Small is currently generating about 0.07 per unit of risk. If you would invest  125,831  in MercadoLibre on April 7, 2024 and sell it today you would earn a total of  40,065  from holding MercadoLibre or generate 31.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

MercadoLibre  vs.  Mesirow Financial Small

MercadoLibre

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MercadoLibre are ranked lower than 7 (%) 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 August 2024.

Mesirow Financial Small

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mesirow Financial Small are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Mesirow Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with MercadoLibre and Mesirow Financial

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

The idea behind MercadoLibre and Mesirow Financial Small 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.

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.