Correlation Between Autohome and MercadoLibre

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

By analyzing existing cross correlation between Autohome and MercadoLibre, you can compare the effects of market volatilities on Autohome 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 Autohome with a short position of MercadoLibre. Check out your portfolio center. Please also check ongoing floating volatility patterns of Autohome and MercadoLibre.

Diversification Opportunities for Autohome and MercadoLibre

-0.07

Correlation Coefficient

Autohome  MercadoLibre

Good diversification

The 3 months correlation between Autohome and MercadoLibre is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Autohome and MercadoLibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MercadoLibre and Autohome 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 Autohome 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 Autohome i.e., Autohome and MercadoLibre go up and down completely randomly.

Pair Corralation between Autohome and MercadoLibre

Assuming the 90 days trading horizon Autohome is expected to generate 0.94 times more return on investment than MercadoLibre. However, Autohome is 1.07 times less risky than MercadoLibre. It trades about 0.04 of its potential returns per unit of risk. MercadoLibre is currently generating about 0.02 per unit of risk. If you would invest  1,654  in Autohome on October 26, 2024 and sell it today you would earn a total of  22.00  from holding Autohome or generate 1.33% return on investment over 90 days.

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

Autohome  vs.  MercadoLibre

Autohome

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Autohome are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Autohome is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 somewhat strong essential indicators, MercadoLibre is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Autohome and MercadoLibre

The main advantage of trading using opposite Autohome and MercadoLibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Autohome 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 Autohome 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.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.