Correlation Between Magazine Luiza and MercadoLibre

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

By analyzing existing cross correlation between Magazine Luiza SA and MercadoLibre, you can compare the effects of market volatilities on Magazine Luiza and MercadoLibre 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 Magazine Luiza with a short position of MercadoLibre. Check out your portfolio center. Please also check ongoing floating volatility patterns of Magazine Luiza and MercadoLibre.

Diversification Opportunities for Magazine Luiza and MercadoLibre

0.64

Correlation Coefficient

Magazine Luiza  MercadoLibre

Poor diversification

The 3 months correlation between Magazine and MercadoLibre is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Magazine Luiza SA and MercadoLibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MercadoLibre and Magazine Luiza 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 Magazine Luiza SA are associated (or correlated) with MercadoLibre. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MercadoLibre has no effect on the direction of Magazine Luiza i.e., Magazine Luiza and MercadoLibre go up and down completely randomly.

Pair Corralation between Magazine Luiza and MercadoLibre

Assuming the 90 days trading horizon Magazine Luiza SA is expected to under-perform the MercadoLibre. In addition to that, Magazine Luiza is 1.68 times more volatile than MercadoLibre. It trades about -0.04 of its total potential returns per unit of risk. MercadoLibre is currently generating about 0.02 per unit of volatility. If you would invest  9,038  in MercadoLibre on October 26, 2024 and sell it today you would earn a total of  23.00  from holding MercadoLibre or generate 0.25% return on investment over 90 days.

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

Magazine Luiza SA  vs.  MercadoLibre

Magazine Luiza SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Magazine Luiza SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

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 somewhat strong essential indicators, MercadoLibre is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Magazine Luiza and MercadoLibre

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

The idea behind Magazine Luiza SA and MercadoLibre 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.