Correlation Between Chewy and Mercadolibre

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

Diversification Opportunities for Chewy and Mercadolibre

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between Chewy and Mercadolibre is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Chewy Inc and Mercadolibre in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Mercadolibre and Chewy 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 Chewy 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 Chewy i.e., Chewy and Mercadolibre go up and down completely randomly.

Pair Corralation between Chewy and Mercadolibre

Given the investment horizon of 90 days Chewy Inc is expected to under-perform the Mercadolibre. In addition to that, Chewy is 1.11 times more volatile than Mercadolibre. It trades about -0.08 of its total potential returns per unit of risk. Mercadolibre is currently generating about -0.04 per unit of volatility. If you would invest  147,634  in Mercadolibre on February 15, 2022 and sell it today you would lose (67,118)  from holding Mercadolibre or give up 45.46% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Chewy Inc  vs.  Mercadolibre

 Performance (%) 
      Timeline 
Chewy Inc 
Chewy Performance
0 of 100
Over the last 90 days Chewy Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in June 2022. The current disturbance may also be a sign of long term up-swing for the company investors.

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

Mercadolibre Price Channel

Chewy and Mercadolibre Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Chewy and Mercadolibre

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

Chewy Inc

Pair trading matchups for Chewy

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

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