Correlation Between MercadoLibre and Chewy

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

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

Diversification Opportunities for MercadoLibre and Chewy

-0.19

Correlation Coefficient

MercadoLibre  Chewy

Good diversification

The 3 months correlation between MercadoLibre and Chewy is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding MercadoLibre and Chewy Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chewy Inc 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 Chewy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chewy Inc has no effect on the direction of MercadoLibre i.e., MercadoLibre and Chewy go up and down completely randomly.

Pair Corralation between MercadoLibre and Chewy

Given the investment horizon of 90 days MercadoLibre is expected to generate 2.37 times less return on investment than Chewy. But when comparing it to its historical volatility, MercadoLibre is 1.33 times less risky than Chewy. It trades about 0.06 of its potential returns per unit of risk. Chewy Inc is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,226  in Chewy Inc on September 1, 2024 and sell it today you would earn a total of  1,115  from holding Chewy Inc or generate 50.09% return on investment over 90 days.

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

MercadoLibre  vs.  Chewy Inc

MercadoLibre

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MercadoLibre are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong essential indicators, MercadoLibre is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Chewy Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chewy Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Chewy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MercadoLibre and Chewy

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

The idea behind MercadoLibre and Chewy Inc 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.