Correlation Between Salesforce and MercadoLibre

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

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

Diversification Opportunities for Salesforce and MercadoLibre

-0.54

Correlation Coefficient

Salesforce  MercadoLibre

Excellent diversification

The 3 months correlation between Salesforce and MercadoLibre is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce and MercadoLibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MercadoLibre and Salesforce 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 Salesforce 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 Salesforce i.e., Salesforce and MercadoLibre go up and down completely randomly.

Pair Corralation between Salesforce and MercadoLibre

Considering the 90-day investment horizon Salesforce is expected to under-perform the MercadoLibre. But the stock apears to be less risky and, when comparing its historical volatility, Salesforce is 1.41 times less risky than MercadoLibre. The stock trades about -0.14 of its potential returns per unit of risk. The MercadoLibre is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  9,038  in MercadoLibre on December 25, 2024 and sell it today you would earn a total of  1,382  from holding MercadoLibre or generate 15.29% return on investment over 90 days.

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

Salesforce  vs.  MercadoLibre

Salesforce

Risk-Adjusted Performance

Very Weak

Over the last 90 days Salesforce has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

MercadoLibre

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MercadoLibre are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain essential indicators, MercadoLibre sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Salesforce and MercadoLibre

The main advantage of trading using opposite Salesforce and MercadoLibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Salesforce 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 Salesforce 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.