Correlation Between Cardano and MercadoLibre

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

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

Diversification Opportunities for Cardano and MercadoLibre

-0.04

Correlation Coefficient

Cardano  MercadoLibre

Good diversification

The 3 months correlation between Cardano and MercadoLibre is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Cardano and MercadoLibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MercadoLibre and Cardano 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 Cardano 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 Cardano i.e., Cardano and MercadoLibre go up and down completely randomly.

Pair Corralation between Cardano and MercadoLibre

Assuming the 90 days trading horizon Cardano is expected to generate 2.68 times more return on investment than MercadoLibre. However, Cardano is 2.68 times more volatile than MercadoLibre. It trades about 0.25 of its potential returns per unit of risk. MercadoLibre is currently generating about -0.05 per unit of risk. If you would invest  35.00  in Cardano on October 11, 2024 and sell it today you would earn a total of  60.00  from holding Cardano or generate 171.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	92.06%
Values	Daily Returns

Cardano  vs.  MercadoLibre

Cardano

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cardano are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Cardano exhibited 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 latest weak performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Cardano and MercadoLibre

The main advantage of trading using opposite Cardano and MercadoLibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cardano 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 Cardano 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.