Correlation Between MercadoLibre and Medical Care

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

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

Diversification Opportunities for MercadoLibre and Medical Care

-0.01

Correlation Coefficient

MercadoLibre  Medical Care

Good diversification

The 3 months correlation between MercadoLibre and Medical is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding MercadoLibre and Medical Care Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medical Care 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 Medical Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medical Care Technologies has no effect on the direction of MercadoLibre i.e., MercadoLibre and Medical Care go up and down completely randomly.

Pair Corralation between MercadoLibre and Medical Care

Given the investment horizon of 90 days MercadoLibre is expected to under-perform the Medical Care. But the stock apears to be less risky and, when comparing its historical volatility, MercadoLibre is 7.03 times less risky than Medical Care. The stock trades about -0.04 of its potential returns per unit of risk. The Medical Care Technologies is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  0.16  in Medical Care Technologies on October 9, 2024 and sell it today you would earn a total of  0.07  from holding Medical Care Technologies or generate 43.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

MercadoLibre  vs.  Medical Care Technologies

MercadoLibre

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MercadoLibre has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's essential indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Medical Care Technologies

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Medical Care Technologies are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Medical Care exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MercadoLibre and Medical Care

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

The idea behind MercadoLibre and Medical Care Technologies 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.