Correlation Between Sea and MercadoLibre

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

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

Diversification Opportunities for Sea and MercadoLibre

-0.25

Correlation Coefficient

Sea  MercadoLibre

Very good diversification

The 3 months correlation between Sea and MercadoLibre is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Sea and MercadoLibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MercadoLibre and Sea 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 Sea 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 Sea i.e., Sea and MercadoLibre go up and down completely randomly.

Pair Corralation between Sea and MercadoLibre

Allowing for the 90-day total investment horizon Sea is expected to generate 0.82 times more return on investment than MercadoLibre. However, Sea is 1.22 times less risky than MercadoLibre. It trades about 0.28 of its potential returns per unit of risk. MercadoLibre is currently generating about 0.01 per unit of risk. If you would invest  7,740  in Sea on September 1, 2024 and sell it today you would earn a total of  3,640  from holding Sea or generate 47.03% return on investment over 90 days.

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

Sea  vs.  MercadoLibre

Sea

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea exhibited solid returns over the last few months and may actually be approaching a breakup point.

MercadoLibre

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MercadoLibre are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong essential indicators, MercadoLibre is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Sea and MercadoLibre

The main advantage of trading using opposite Sea and MercadoLibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sea 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 Sea 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.