Correlation Between Farfetch and Mercadolibre

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

Diversification Opportunities for Farfetch and Mercadolibre

0.86
  Correlation Coefficient

Very poor diversification

The 24 months correlation between Farfetch and Mercadolibre is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Farfetch Ltd Cl and Mercadolibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercadolibre and Farfetch 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 Farfetch Ltd 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 Farfetch i.e., Farfetch and Mercadolibre go up and down completely randomly.

Pair Corralation between Farfetch and Mercadolibre

Given the investment horizon of 90 days Farfetch Ltd Cl is expected to under-perform the Mercadolibre. In addition to that, Farfetch is 1.55 times more volatile than Mercadolibre. It trades about -0.1 of its total potential returns per unit of risk. Mercadolibre is currently generating about -0.08 per unit of volatility. If you would invest  103,359  in Mercadolibre on February 24, 2022 and sell it today you would lose (33,373)  from holding Mercadolibre or give up 32.29% of portfolio value over 90 days.
Time Period24 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Farfetch Ltd Cl  vs.  Mercadolibre

 Performance (%) 
      Timeline 
Farfetch Ltd Cl 
Farfetch Performance
0 of 100
Over the last 90 days Farfetch Ltd Cl has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Farfetch is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Farfetch 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 nearly stable essential indicators, Mercadolibre is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Mercadolibre Price Channel

Farfetch and Mercadolibre Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Farfetch and Mercadolibre

The main advantage of trading using opposite Farfetch and Mercadolibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Farfetch 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 Farfetch Ltd 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.

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