Correlation Between Carvana Co and Mercadolibre

By analyzing existing cross correlation between Carvana Co Cl and Mercadolibre, you can compare the effects of market volatilities on Carvana Co 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 Carvana Co with a short position of Mercadolibre. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carvana Co and Mercadolibre.

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Can any of the company-specific risk be diversified away by investing in both Carvana Co 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 Carvana Co and Mercadolibre into the same portfolio, which is an essential part of the fundamental portfolio management process.

Diversification Opportunities for Carvana Co and Mercadolibre

0.7
  Correlation Coefficient
Carvana Co Cl
Mercadolibre

Poor diversification

The 12 months correlation between Carvana and Mercadolibre is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Carvana Co Cl and Mercadolibre in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Mercadolibre and Carvana Co 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 Carvana Co Cl 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 Carvana Co i.e., Carvana Co and Mercadolibre go up and down completely randomly.

Pair Corralation between Carvana Co and Mercadolibre

Given the investment horizon of 90 days Carvana Co Cl is expected to under-perform the Mercadolibre. In addition to that, Carvana Co is 1.1 times more volatile than Mercadolibre. It trades about -0.06 of its total potential returns per unit of risk. Mercadolibre is currently generating about -0.06 per unit of volatility. If you would invest  184,473  in Mercadolibre on October 25, 2021 and sell it today you would lose (79,217)  from holding Mercadolibre or give up 42.94% of portfolio value over 90 days.
Time Period12 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Carvana Co Cl  vs.  Mercadolibre

 Performance (%) 
      Timeline 
Carvana Co Cl 
Carvana Performance
0 of 100
Over the last 90 days Carvana Co Cl has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Carvana 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 latest weak performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Mercadolibre Price Channel

Carvana Co and Mercadolibre Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Carvana Co and Mercadolibre

The main advantage of trading using opposite Carvana Co and Mercadolibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carvana Co 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 Carvana Co Cl 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.

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