Correlation Between Jumia Technologies and MercadoLibre

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

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

Diversification Opportunities for Jumia Technologies and MercadoLibre

-0.38

Correlation Coefficient

Jumia Technologies  MercadoLibre

Very good diversification

The 3 months correlation between Jumia and MercadoLibre is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Jumia Technologies AG and MercadoLibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MercadoLibre and Jumia Technologies 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 Jumia Technologies AG 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 Jumia Technologies i.e., Jumia Technologies and MercadoLibre go up and down completely randomly.

Pair Corralation between Jumia Technologies and MercadoLibre

Given the investment horizon of 90 days Jumia Technologies AG is expected to under-perform the MercadoLibre. In addition to that, Jumia Technologies is 2.6 times more volatile than MercadoLibre. It trades about -0.09 of its total potential returns per unit of risk. MercadoLibre is currently generating about 0.08 per unit of volatility. If you would invest  198,517  in MercadoLibre on November 28, 2024 and sell it today you would earn a total of  18,343  from holding MercadoLibre or generate 9.24% return on investment over 90 days.

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

Jumia Technologies AG  vs.  MercadoLibre

Jumia Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Jumia Technologies AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's forward indicators remain somewhat strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

MercadoLibre

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MercadoLibre are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady essential indicators, MercadoLibre may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Jumia Technologies and MercadoLibre

The main advantage of trading using opposite Jumia Technologies and MercadoLibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Jumia Technologies 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 Jumia Technologies AG 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.