Correlation Between MercadoLibre and ASOS Plc

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

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

Diversification Opportunities for MercadoLibre and ASOS Plc

-0.81

Correlation Coefficient

MercadoLibre  ASOS Plc

Pay attention - limited upside

The 3 months correlation between MercadoLibre and ASOS is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding MercadoLibre and ASOS Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ASOS Plc and MercadoLibre 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 MercadoLibre are associated (or correlated) with ASOS Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ASOS Plc has no effect on the direction of MercadoLibre i.e., MercadoLibre and ASOS Plc go up and down completely randomly.

Pair Corralation between MercadoLibre and ASOS Plc

Given the investment horizon of 90 days MercadoLibre is expected to generate 1.99 times more return on investment than ASOS Plc. However, MercadoLibre is 1.99 times more volatile than ASOS Plc. It trades about 0.15 of its potential returns per unit of risk. ASOS Plc is currently generating about -0.11 per unit of risk. If you would invest  172,985  in MercadoLibre on December 23, 2024 and sell it today you would earn a total of  36,542  from holding MercadoLibre or generate 21.12% return on investment over 90 days.

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

MercadoLibre  vs.  ASOS Plc

MercadoLibre

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MercadoLibre are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady essential indicators, MercadoLibre demonstrated solid returns over the last few months and may actually be approaching a breakup point.

ASOS Plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days ASOS Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's primary indicators 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 MercadoLibre and ASOS Plc

The main advantage of trading using opposite MercadoLibre and ASOS Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MercadoLibre position performs unexpectedly, ASOS Plc 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 ASOS Plc will offset losses from the drop in ASOS Plc's long position.

The idea behind MercadoLibre and ASOS Plc 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.