Correlation Between MercadoLibre and ODP
Can any of the company-specific risk be diversified away by investing in both MercadoLibre and ODP 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 ODP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MercadoLibre and The ODP, you can compare the effects of market volatilities on MercadoLibre and ODP 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 ODP. Check out your portfolio center. Please also check ongoing floating volatility patterns of MercadoLibre and ODP.
Diversification Opportunities for MercadoLibre and ODP
0.0 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between MercadoLibre and ODP is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding MercadoLibre and The ODP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ODP 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 ODP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ODP has no effect on the direction of MercadoLibre i.e., MercadoLibre and ODP go up and down completely randomly.
Pair Corralation between MercadoLibre and ODP
Assuming the 90 days trading horizon MercadoLibre is expected to generate 2.19 times more return on investment than ODP. However, MercadoLibre is 2.19 times more volatile than The ODP. It trades about 0.05 of its potential returns per unit of risk. The ODP is currently generating about 0.09 per unit of risk. If you would invest 2,153,000 in MercadoLibre on January 19, 2024 and sell it today you would earn a total of 205,000 from holding MercadoLibre or generate 9.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 99.17% |
| Values | Daily Returns |
MercadoLibre vs. The ODP
Performance |
| Timeline |
| MercadoLibre |
| ODP |
MercadoLibre and ODP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MercadoLibre and ODP
The main advantage of trading using opposite MercadoLibre and ODP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MercadoLibre position performs unexpectedly, ODP 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 ODP will offset losses from the drop in ODP's long position.The idea behind MercadoLibre and The ODP 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.Check out your portfolio center.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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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