Correlation Between Mercadolibre and Carvana Co

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

Diversification Opportunities for Mercadolibre and Carvana Co

0.75
  Correlation Coefficient

Poor diversification

The 3 months correlation between Mercadolibre and Carvana is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Mercadolibre and Carvana Co Cl in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Carvana Co Cl 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 Carvana Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carvana Co Cl has no effect on the direction of Mercadolibre i.e., Mercadolibre and Carvana Co go up and down completely randomly.

Pair Corralation between Mercadolibre and Carvana Co

Given the investment horizon of 90 days Mercadolibre is expected to generate 0.7 times more return on investment than Carvana Co. However, Mercadolibre is 1.43 times less risky than Carvana Co. It trades about 0.02 of its potential returns per unit of risk. Carvana Co Cl is currently generating about -0.01 per unit of risk. If you would invest  82,716  in Mercadolibre on February 17, 2022 and sell it today you would earn a total of  772.00  from holding Mercadolibre or generate 0.93% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy99.8%
ValuesDaily Returns

Mercadolibre  vs.  Carvana Co Cl

 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 latest uncertain performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Mercadolibre Price Channel

Carvana Co Cl 
Carvana Performance
0 of 100
Over the last 90 days Carvana Co Cl 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 basic indicators remain somewhat strong which may send shares a bit higher in June 2022. The current disturbance may also be a sign of long term up-swing for the company investors.

Carvana Price Channel

Mercadolibre and Carvana Co Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Mercadolibre and Carvana Co

The main advantage of trading using opposite Mercadolibre and Carvana Co positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mercadolibre position performs unexpectedly, Carvana Co 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 Carvana Co will offset losses from the drop in Carvana Co's long position.
The idea behind Mercadolibre and Carvana Co Cl 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.

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