Correlation Between Allena Pharmaceuticals and Mercadolibre

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

Diversification Opportunities for Allena Pharmaceuticals and Mercadolibre

-0.25
  Correlation Coefficient

Very good diversification

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

Pair Corralation between Allena Pharmaceuticals and Mercadolibre

Given the investment horizon of 90 days Allena Pharmaceuticals is expected to under-perform the Mercadolibre. In addition to that, Allena Pharmaceuticals is 2.29 times more volatile than Mercadolibre. It trades about -0.02 of its total potential returns per unit of risk. Mercadolibre is currently generating about 0.01 per unit of volatility. If you would invest  121,209  in Mercadolibre on May 16, 2022 and sell it today you would lose (13,101)  from holding Mercadolibre or give up 10.81% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Allena Pharmaceuticals  vs.  Mercadolibre

 Performance (%) 
       Timeline  
Allena Pharmaceuticals 
Allena Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Allena Pharmaceuticals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat sluggish basic indicators, Allena Pharmaceuticals sustained solid returns over the last few months and may actually be approaching a breakup point.

Allena Price Channel

Mercadolibre 
Mercadolibre Performance
9 of 100
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 conflicting essential indicators, Mercadolibre reported solid returns over the last few months and may actually be approaching a breakup point.

Mercadolibre Price Channel

Allena Pharmaceuticals and Mercadolibre Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Allena Pharmaceuticals and Mercadolibre

The main advantage of trading using opposite Allena Pharmaceuticals and Mercadolibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allena Pharmaceuticals 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.

Allena Pharmaceuticals

Pair trading matchups for Allena Pharmaceuticals

The idea behind Allena Pharmaceuticals 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 Bond Directory module to find actively traded corporate debentures issued by US companies.

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