Correlation Between MercadoLibre and Autohome

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

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

Diversification Opportunities for MercadoLibre and Autohome

-0.04

Correlation Coefficient

MercadoLibre  Autohome

Good diversification

The 3 months correlation between MercadoLibre and Autohome is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding MercadoLibre and Autohome in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Autohome 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 Autohome. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Autohome has no effect on the direction of MercadoLibre i.e., MercadoLibre and Autohome go up and down completely randomly.

Pair Corralation between MercadoLibre and Autohome

Assuming the 90 days trading horizon MercadoLibre is expected to under-perform the Autohome. But the stock apears to be less risky and, when comparing its historical volatility, MercadoLibre is 1.06 times less risky than Autohome. The stock trades about -0.15 of its potential returns per unit of risk. The Autohome is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  1,655  in Autohome on October 11, 2024 and sell it today you would lose (53.00) from holding Autohome or give up 3.2% of portfolio value over 90 days.

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

MercadoLibre  vs.  Autohome

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

Autohome

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Autohome has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic 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 Autohome

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

The idea behind MercadoLibre and Autohome 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.