Correlation Between Amazon and Mercadolibre

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

Diversification Opportunities for Amazon and Mercadolibre

0.9
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Amazon and Mercadolibre is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Mercadolibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercadolibre and Amazon 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 Amazon Inc 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 Amazon i.e., Amazon and Mercadolibre go up and down completely randomly.

Pair Corralation between Amazon and Mercadolibre

Given the investment horizon of 90 days Amazon Inc is expected to under-perform the Mercadolibre. But the stock apears to be less risky and, when comparing its historical volatility, Amazon Inc is 1.64 times less risky than Mercadolibre. The stock trades about -0.02 of its potential returns per unit of risk. The Mercadolibre is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  98,842  in Mercadolibre on February 22, 2022 and sell it today you would lose (21,412)  from holding Mercadolibre or give up 21.66% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Amazon Inc  vs.  Mercadolibre

 Performance (%) 
      Timeline 
Amazon Inc 
Amazon Performance
0 of 100
Over the last 90 days Amazon Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in June 2022. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Amazon Price Channel

Mercadolibre 
Mercadolibre Performance
0 of 100
Over the last 90 days Mercadolibre has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Mercadolibre is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Mercadolibre Price Channel

Amazon and Mercadolibre Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Amazon and Mercadolibre

The main advantage of trading using opposite Amazon and Mercadolibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon 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 Amazon Inc 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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