Correlation Between Etsy and Mercadolibre

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

Diversification Opportunities for Etsy and Mercadolibre

0.84
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Etsy and Mercadolibre is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Etsy Inc and Mercadolibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercadolibre and Etsy 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 Etsy 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 Etsy i.e., Etsy and Mercadolibre go up and down completely randomly.

Pair Corralation between Etsy and Mercadolibre

Given the investment horizon of 90 days Etsy is expected to generate 1.05 times less return on investment than Mercadolibre. But when comparing it to its historical volatility, Etsy Inc is 1.09 times less risky than Mercadolibre. It trades about 0.27 of its potential returns per unit of risk. Mercadolibre is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  67,269  in Mercadolibre on May 16, 2022 and sell it today you would earn a total of  40,839  from holding Mercadolibre or generate 60.71% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Etsy Inc  vs.  Mercadolibre

 Performance (%) 
       Timeline  
Etsy Inc 
Etsy Performance
10 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Etsy Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Etsy showed solid returns over the last few months and may actually be approaching a breakup point.

Etsy Price Channel

Mercadolibre 
Mercadolibre Performance
9 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Mercadolibre are ranked lower than 9 (%) 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

Etsy and Mercadolibre Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Etsy and Mercadolibre

The main advantage of trading using opposite Etsy and Mercadolibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Etsy 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 Etsy 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 Global Correlations module to find global opportunities by holding instruments from different markets.

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