Correlation Between MercadoLibre and Jumia Technologies

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

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

Diversification Opportunities for MercadoLibre and Jumia Technologies

0.41

Correlation Coefficient

MercadoLibre  Jumia Technologies

Very weak diversification

The 3 months correlation between MercadoLibre and Jumia is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding MercadoLibre and Jumia Technologies AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jumia Technologies 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 Jumia Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jumia Technologies has no effect on the direction of MercadoLibre i.e., MercadoLibre and Jumia Technologies go up and down completely randomly.

Pair Corralation between MercadoLibre and Jumia Technologies

Given the investment horizon of 90 days MercadoLibre is expected to generate 0.65 times more return on investment than Jumia Technologies. However, MercadoLibre is 1.53 times less risky than Jumia Technologies. It trades about 0.01 of its potential returns per unit of risk. Jumia Technologies AG is currently generating about -0.03 per unit of risk. 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 Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

MercadoLibre  vs.  Jumia Technologies AG

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.

Jumia Technologies

Risk-Adjusted Performance

0 of 100

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 latest unsteady performance, the Stock's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with MercadoLibre and Jumia Technologies

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

The idea behind MercadoLibre and Jumia Technologies AG 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.