Correlation Between Baozun Inc and Mercadolibre

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

Diversification Opportunities for Baozun Inc and Mercadolibre

-0.34
  Correlation Coefficient

Very good diversification

The 3 months correlation between Baozun and Mercadolibre is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Baozun Inc ADR and Mercadolibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercadolibre and Baozun Inc 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 Baozun Inc ADR 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 Baozun Inc i.e., Baozun Inc and Mercadolibre go up and down completely randomly.

Pair Corralation between Baozun Inc and Mercadolibre

Given the investment horizon of 90 days Baozun Inc ADR is expected to under-perform the Mercadolibre. But the stock apears to be less risky and, when comparing its historical volatility, Baozun Inc ADR is 1.3 times less risky than Mercadolibre. The stock trades about -0.06 of its potential returns per unit of risk. The Mercadolibre is currently generating about 0.46 of returns per unit of risk over similar time horizon. If you would invest  65,992  in Mercadolibre on May 11, 2022 and sell it today you would earn a total of  36,433  from holding Mercadolibre or generate 55.21% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy95.45%
ValuesDaily Returns

Baozun Inc ADR  vs.  Mercadolibre

 Performance (%) 
       Timeline  
Baozun Inc ADR 
Baozun Performance
9 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Baozun Inc ADR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile basic indicators, Baozun Inc disclosed solid returns over the last few months and may actually be approaching a breakup point.

Baozun Price Channel

Mercadolibre 
Mercadolibre Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Mercadolibre are ranked lower than 11 (%) 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

Baozun Inc and Mercadolibre Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Baozun Inc and Mercadolibre

The main advantage of trading using opposite Baozun Inc and Mercadolibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Baozun Inc 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 Baozun Inc ADR 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.

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