Correlation Between Alibaba Group and Mercadolibre

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

Diversification Opportunities for Alibaba Group and Mercadolibre

0.38
  Correlation Coefficient

Weak diversification

The 3 months correlation between Alibaba and Mercadolibre is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Alibaba Group Holding and Mercadolibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercadolibre and Alibaba Group 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 Alibaba Group Holding 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 Alibaba Group i.e., Alibaba Group and Mercadolibre go up and down completely randomly.

Pair Corralation between Alibaba Group and Mercadolibre

Given the investment horizon of 90 days Alibaba Group Holding is expected to generate 1.08 times more return on investment than Mercadolibre. However, Alibaba Group is 1.08 times more volatile than Mercadolibre. It trades about 0.3 of its potential returns per unit of risk. Mercadolibre is currently generating about 0.05 per unit of risk. If you would invest  8,231  in Alibaba Group Holding on March 26, 2022 and sell it today you would earn a total of  3,531  from holding Alibaba Group Holding or generate 42.9% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Alibaba Group Holding  vs.  Mercadolibre

 Performance (%) 
      Timeline 
Alibaba Group Holding 
Alibaba Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Alibaba Group Holding are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting fundamental drivers, Alibaba Group may actually be approaching a critical reversion point that can send shares even higher in July 2022.

Alibaba 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 conflicting performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in July 2022. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Structure and Payout Changes

Dividend Date
2018-01-16
Ex Dividend Date
2017-12-28

Mercadolibre Price Channel

Alibaba Group and Mercadolibre Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Alibaba Group and Mercadolibre

The main advantage of trading using opposite Alibaba Group and Mercadolibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alibaba Group 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 Alibaba Group Holding 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.

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