Correlation Between Home Depot and Mercadolibre

Specify exactly 2 symbols:
Can any of the company-specific risk be diversified away by investing in both Home Depot 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 Home Depot and Mercadolibre into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Home Depot and Mercadolibre, you can compare the effects of market volatilities on Home Depot 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 Home Depot with a short position of Mercadolibre. Check out your portfolio center. Please also check ongoing floating volatility patterns of Home Depot and Mercadolibre.

Diversification Opportunities for Home Depot and Mercadolibre

0.77
  Correlation Coefficient

Poor diversification

The 3 months correlation between Home Depot and Mercadolibre is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Home Depot and Mercadolibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercadolibre and Home Depot 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 Home Depot 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 Home Depot i.e., Home Depot and Mercadolibre go up and down completely randomly.

Pair Corralation between Home Depot and Mercadolibre

Allowing for the 90-day total investment horizon Home Depot is expected to generate 0.37 times more return on investment than Mercadolibre. However, Home Depot is 2.74 times less risky than Mercadolibre. It trades about -0.03 of its potential returns per unit of risk. Mercadolibre is currently generating about -0.02 per unit of risk. If you would invest  36,164  in Home Depot on May 10, 2022 and sell it today you would lose (4,967)  from holding Home Depot or give up 13.73% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Home Depot  vs.  Mercadolibre

 Performance (%) 
       Timeline  
Home Depot 
Home Depot Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Home Depot are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal fundamental indicators, Home Depot may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Home Depot Price Channel

Mercadolibre 
Mercadolibre Performance
8 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Mercadolibre are ranked lower than 8 (%) 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

Home Depot and Mercadolibre Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Home Depot and Mercadolibre

The main advantage of trading using opposite Home Depot and Mercadolibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home Depot 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 Home Depot 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.

Other Complementary Tools

Idea Breakdown
Analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes
Go
Options Analysis
Analyze and evaluate options and option chains as a potential hedge for your portfolios
Go
Correlation Analysis
Reduce portfolio risk simply by holding instruments which are not perfectly correlated
Go
Fundamentals Comparison
Compare fundamentals across multiple equities to find investing opportunities
Go
Bond Analysis
Evaluate and analyze corporate bonds as a potential investment for your portfolios.
Go
Commodity Channel Index
Use Commodity Channel Index to analyze current equity momentum
Go
Theme Ratings
Determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance
Go
Portfolio Backtesting
Avoid under-diversification and over-optimization by backtesting your portfolios
Go
Portfolio Rebalancing
Analyze risk-adjusted returns against different time horizons to find asset-allocation targets
Go
Fundamental Analysis
View fundamental data based on most recent published financial statements
Go
Risk-Return Analysis
View associations between returns expected from investment and the risk you assume
Go