Correlation Between Hong Kong and MercadoLibre

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Can any of the company-specific risk be diversified away by investing in both Hong Kong 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 Hong Kong and MercadoLibre into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hong Kong Television and MercadoLibre, you can compare the effects of market volatilities on Hong Kong 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 Hong Kong with a short position of MercadoLibre. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hong Kong and MercadoLibre.

Diversification Opportunities for Hong Kong and MercadoLibre

-0.24
  Correlation Coefficient

Very good diversification

The 3 months correlation between Hong and MercadoLibre is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Hong Kong Television and MercadoLibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MercadoLibre and Hong Kong 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 Hong Kong Television 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 Hong Kong i.e., Hong Kong and MercadoLibre go up and down completely randomly.

Pair Corralation between Hong Kong and MercadoLibre

Assuming the 90 days horizon Hong Kong Television is expected to under-perform the MercadoLibre. In addition to that, Hong Kong is 1.27 times more volatile than MercadoLibre. It trades about -0.22 of its total potential returns per unit of risk. MercadoLibre is currently generating about -0.15 per unit of volatility. If you would invest  160,744  in MercadoLibre on December 29, 2023 and sell it today you would lose (8,479) from holding MercadoLibre or give up 5.27% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Hong Kong Television  vs.  MercadoLibre

 Performance 
       Timeline  
Hong Kong Television 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Hong Kong Television has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2024. The current disturbance may also be a sign of long term up-swing for the company investors.
MercadoLibre 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days MercadoLibre has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong essential indicators, MercadoLibre is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Hong Kong and MercadoLibre Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Hong Kong and MercadoLibre

The main advantage of trading using opposite Hong Kong and MercadoLibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hong Kong 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 Hong Kong Television 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.
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.

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