Correlation Between Mitsui Chemicals and MercadoLibre

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

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

Diversification Opportunities for Mitsui Chemicals and MercadoLibre

0.41

Correlation Coefficient

Mitsui Chemicals  MercadoLibre

Very weak diversification

The 3 months correlation between Mitsui and MercadoLibre is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Mitsui Chemicals and MercadoLibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MercadoLibre and Mitsui Chemicals 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 Mitsui Chemicals 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 Mitsui Chemicals i.e., Mitsui Chemicals and MercadoLibre go up and down completely randomly.

Pair Corralation between Mitsui Chemicals and MercadoLibre

Assuming the 90 days trading horizon Mitsui Chemicals is expected to generate 4.33 times less return on investment than MercadoLibre. But when comparing it to its historical volatility, Mitsui Chemicals is 2.35 times less risky than MercadoLibre. It trades about 0.07 of its potential returns per unit of risk. MercadoLibre is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  164,500  in MercadoLibre on December 25, 2024 and sell it today you would earn a total of  35,500  from holding MercadoLibre or generate 21.58% return on investment over 90 days.

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

Mitsui Chemicals  vs.  MercadoLibre

Mitsui Chemicals

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mitsui Chemicals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward indicators, Mitsui Chemicals is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

MercadoLibre

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MercadoLibre are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain fundamental drivers, MercadoLibre reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mitsui Chemicals and MercadoLibre

The main advantage of trading using opposite Mitsui Chemicals and MercadoLibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mitsui Chemicals 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 Mitsui Chemicals 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.