Correlation Between MercadoLibre and SINOPHARM GROUP

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

By analyzing existing cross correlation between MercadoLibre and SINOPHARM GROUP 15ON, you can compare the effects of market volatilities on MercadoLibre and SINOPHARM GROUP 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 SINOPHARM GROUP. Check out your portfolio center. Please also check ongoing floating volatility patterns of MercadoLibre and SINOPHARM GROUP.

Diversification Opportunities for MercadoLibre and SINOPHARM GROUP

-0.55

Correlation Coefficient

MercadoLibre  SINOPHARM GROUP

Excellent diversification

The 3 months correlation between MercadoLibre and SINOPHARM is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding MercadoLibre and SINOPHARM GROUP 15ON in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SINOPHARM GROUP 15ON 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 SINOPHARM GROUP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SINOPHARM GROUP 15ON has no effect on the direction of MercadoLibre i.e., MercadoLibre and SINOPHARM GROUP go up and down completely randomly.

Pair Corralation between MercadoLibre and SINOPHARM GROUP

Assuming the 90 days trading horizon MercadoLibre is expected to generate 1.95 times more return on investment than SINOPHARM GROUP. However, MercadoLibre is 1.95 times more volatile than SINOPHARM GROUP 15ON. It trades about 0.14 of its potential returns per unit of risk. SINOPHARM GROUP 15ON is currently generating about -0.39 per unit of risk. If you would invest  164,500  in MercadoLibre on October 26, 2024 and sell it today you would earn a total of  8,900  from holding MercadoLibre or generate 5.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

MercadoLibre  vs.  SINOPHARM GROUP 15ON

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 fragile performance, the Stock's fundamental drivers remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

SINOPHARM GROUP 15ON

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SINOPHARM GROUP 15ON are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, SINOPHARM GROUP is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with MercadoLibre and SINOPHARM GROUP

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

The idea behind MercadoLibre and SINOPHARM GROUP 15ON 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.