Correlation Between Mercadolibre and Chewy

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

Diversification Opportunities for Mercadolibre and Chewy

0.73
  Correlation Coefficient

Poor diversification

The 3 months correlation between Mercadolibre and Chewy is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Mercadolibre and Chewy Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chewy Inc and Mercadolibre 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 Mercadolibre are associated (or correlated) with Chewy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chewy Inc has no effect on the direction of Mercadolibre i.e., Mercadolibre and Chewy go up and down completely randomly.

Pair Corralation between Mercadolibre and Chewy

Given the investment horizon of 90 days Mercadolibre is expected to under-perform the Chewy. But the stock apears to be less risky and, when comparing its historical volatility, Mercadolibre is 1.17 times less risky than Chewy. The stock trades about 0.0 of its potential returns per unit of risk. The Chewy Inc is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,800  in Chewy Inc on April 5, 2022 and sell it today you would lose (1,081)  from holding Chewy Inc or give up 22.52% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Mercadolibre  vs.  Chewy Inc

 Performance (%) 
      Timeline 
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 conflicting performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in August 2022. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Structure and Payout Changes

Dividend Date
2018-01-16
Ex Dividend Date
2017-12-28

Mercadolibre Price Channel

Chewy Inc 
Chewy Performance
0 of 100
Over the last 90 days Chewy Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Chewy is not utilizing all of its potentials. The new stock price disturbance, may contribute to short-term losses for the investors.

Chewy Price Channel

Mercadolibre and Chewy Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Mercadolibre and Chewy

The main advantage of trading using opposite Mercadolibre and Chewy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mercadolibre position performs unexpectedly, Chewy 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 Chewy will offset losses from the drop in Chewy's long position.
The idea behind Mercadolibre and Chewy Inc 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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