Correlation Between Imedia Brands and Mercadolibre

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

Diversification Opportunities for Imedia Brands and Mercadolibre

0.55
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Imedia and Mercadolibre is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Imedia Brands and Mercadolibre in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Mercadolibre and Imedia Brands 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 Imedia Brands 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 Imedia Brands i.e., Imedia Brands and Mercadolibre go up and down completely randomly.

Pair Corralation between Imedia Brands and Mercadolibre

Given the investment horizon of 90 days Imedia Brands is expected to under-perform the Mercadolibre. But the stock apears to be less risky and, when comparing its historical volatility, Imedia Brands is 1.2 times less risky than Mercadolibre. The stock trades about -0.56 of its potential returns per unit of risk. The Mercadolibre is currently generating about -0.18 of returns per unit of risk over similar time horizon. If you would invest  107,004  in Mercadolibre on February 16, 2022 and sell it today you would lose (28,223)  from holding Mercadolibre or give up 26.38% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Imedia Brands  vs.  Mercadolibre

 Performance (%) 
      Timeline 
Imedia Brands 
Imedia Performance
0 of 100
Over the last 90 days Imedia Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental drivers 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.

Imedia 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 unsteady 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

Imedia Brands and Mercadolibre Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Imedia Brands and Mercadolibre

The main advantage of trading using opposite Imedia Brands and Mercadolibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Imedia Brands 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 Imedia Brands 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.

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