Correlation Between MercadoLibre and Farfetch

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

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

Diversification Opportunities for MercadoLibre and Farfetch

-0.44

Correlation Coefficient

MercadoLibre  Farfetch

Very good diversification

The 3 months correlation between MercadoLibre and Farfetch is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding MercadoLibre and Farfetch Ltd Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farfetch Class 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 Farfetch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farfetch Class has no effect on the direction of MercadoLibre i.e., MercadoLibre and Farfetch go up and down completely randomly.

Pair Corralation between MercadoLibre and Farfetch

If you would invest  199,017  in MercadoLibre on September 1, 2024 and sell it today you would lose (500.00) from holding MercadoLibre or give up 0.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	1.59%
Values	Daily Returns

MercadoLibre  vs.  Farfetch Ltd Class

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.

Farfetch Class

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Farfetch Ltd Class has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Farfetch is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with MercadoLibre and Farfetch

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

The idea behind MercadoLibre and Farfetch Ltd Class 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.