Correlation Between MercadoLibre and Man Wah

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

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

Diversification Opportunities for MercadoLibre and Man Wah

-0.63

Correlation Coefficient

MercadoLibre  Man Wah

Excellent diversification

The 3 months correlation between MercadoLibre and Man is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding MercadoLibre and Man Wah Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Man Wah Holdings 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 Man Wah. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Man Wah Holdings has no effect on the direction of MercadoLibre i.e., MercadoLibre and Man Wah go up and down completely randomly.

Pair Corralation between MercadoLibre and Man Wah

Assuming the 90 days trading horizon MercadoLibre is expected to under-perform the Man Wah. But the stock apears to be less risky and, when comparing its historical volatility, MercadoLibre is 4.09 times less risky than Man Wah. The stock trades about -0.26 of its potential returns per unit of risk. The Man Wah Holdings is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  43.00  in Man Wah Holdings on October 4, 2024 and sell it today you would earn a total of  13.00  from holding Man Wah Holdings or generate 30.23% return on investment over 90 days.

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

MercadoLibre  vs.  Man Wah Holdings

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 nearly stable fundamental drivers, MercadoLibre is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Man Wah Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Man Wah Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Man Wah reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MercadoLibre and Man Wah

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

The idea behind MercadoLibre and Man Wah Holdings 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.