Correlation Between Best Buy and MercadoLibre

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

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

Diversification Opportunities for Best Buy and MercadoLibre

0.08

Correlation Coefficient

Best Buy  MercadoLibre

Significant diversification

The 3 months correlation between Best and MercadoLibre is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Best Buy Co and MercadoLibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MercadoLibre and Best Buy 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 Best Buy Co 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 Best Buy i.e., Best Buy and MercadoLibre go up and down completely randomly.

Pair Corralation between Best Buy and MercadoLibre

Assuming the 90 days horizon Best Buy Co is expected to generate 0.76 times more return on investment than MercadoLibre. However, Best Buy Co is 1.31 times less risky than MercadoLibre. It trades about 0.07 of its potential returns per unit of risk. MercadoLibre is currently generating about 0.03 per unit of risk. If you would invest  5,939  in Best Buy Co on September 23, 2024 and sell it today you would earn a total of  2,225  from holding Best Buy Co or generate 37.46% return on investment over 90 days.

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

Best Buy Co  vs.  MercadoLibre

Best Buy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Best Buy Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Best Buy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 fragile performance, the Stock's fundamental drivers remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Best Buy and MercadoLibre

The main advantage of trading using opposite Best Buy and MercadoLibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Best Buy 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 Best Buy Co 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.