Correlation Between American Eagle and MercadoLibre
Can any of the company-specific risk be diversified away by investing in both American Eagle 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 American Eagle and MercadoLibre into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Eagle Outfitters and MercadoLibre, you can compare the effects of market volatilities on American Eagle 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 American Eagle with a short position of MercadoLibre. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Eagle and MercadoLibre.
Diversification Opportunities for American Eagle and MercadoLibre
-0.46 | Correlation Coefficient |
Very good diversification
The 3 months correlation between American and MercadoLibre is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding American Eagle Outfitters and MercadoLibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MercadoLibre and American Eagle 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 American Eagle Outfitters 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 American Eagle i.e., American Eagle and MercadoLibre go up and down completely randomly.
Pair Corralation between American Eagle and MercadoLibre
Considering the 90-day investment horizon American Eagle is expected to generate 7.31 times less return on investment than MercadoLibre. But when comparing it to its historical volatility, American Eagle Outfitters is 1.14 times less risky than MercadoLibre. It trades about 0.03 of its potential returns per unit of risk. MercadoLibre is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 148,858 in MercadoLibre on February 6, 2024 and sell it today you would earn a total of 17,650 from holding MercadoLibre or generate 11.86% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
American Eagle Outfitters vs. MercadoLibre
Performance |
Timeline |
American Eagle Outfitters |
MercadoLibre |
American Eagle and MercadoLibre Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with American Eagle and MercadoLibre
The main advantage of trading using opposite American Eagle and MercadoLibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Eagle 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.American Eagle vs. Urban Outfitters | American Eagle vs. Gap Inc | American Eagle vs. Foot Locker | American Eagle vs. Childrens Place |
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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 the USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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