Correlation Between Citigroup and MercadoLibre

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

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

Diversification Opportunities for Citigroup and MercadoLibre

-0.11

Correlation Coefficient

Citigroup  MercadoLibre

Good diversification

The 3 months correlation between Citigroup and MercadoLibre is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and MercadoLibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MercadoLibre and Citigroup 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 Citigroup 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 Citigroup i.e., Citigroup and MercadoLibre go up and down completely randomly.

Pair Corralation between Citigroup and MercadoLibre

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.47 times less return on investment than MercadoLibre. But when comparing it to its historical volatility, Citigroup is 1.4 times less risky than MercadoLibre. It trades about 0.06 of its potential returns per unit of risk. MercadoLibre is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4,739  in MercadoLibre on October 11, 2024 and sell it today you would earn a total of  4,070  from holding MercadoLibre or generate 85.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Citigroup  vs.  MercadoLibre

Citigroup

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Citigroup 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 Citigroup and MercadoLibre

The main advantage of trading using opposite Citigroup and MercadoLibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citigroup 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 Citigroup 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.