Correlation Between Bright Scholar and MercadoLibre

Can any of the company-specific risk be diversified away by investing in both Bright Scholar 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 Bright Scholar and MercadoLibre into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bright Scholar Education and MercadoLibre, you can compare the effects of market volatilities on Bright Scholar 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 Bright Scholar with a short position of MercadoLibre. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bright Scholar and MercadoLibre.

Diversification Opportunities for Bright Scholar and MercadoLibre

-0.44

Correlation Coefficient

Bright Scholar  MercadoLibre

Very good diversification

The 3 months correlation between Bright and MercadoLibre is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Bright Scholar Education and MercadoLibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MercadoLibre and Bright Scholar 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 Bright Scholar Education 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 Bright Scholar i.e., Bright Scholar and MercadoLibre go up and down completely randomly.

Pair Corralation between Bright Scholar and MercadoLibre

Given the investment horizon of 90 days Bright Scholar is expected to generate 18.14 times less return on investment than MercadoLibre. In addition to that, Bright Scholar is 1.31 times more volatile than MercadoLibre. It trades about 0.01 of its total potential returns per unit of risk. MercadoLibre is currently generating about 0.2 per unit of volatility. If you would invest  148,858  in MercadoLibre on February 7, 2024 and sell it today you would earn a total of  16,527  from holding MercadoLibre or generate 11.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Bright Scholar Education  vs.  MercadoLibre

Bright Scholar Education

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bright Scholar Education are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Bright Scholar may actually be approaching a critical reversion point that can send shares even higher in June 2024.

MercadoLibre

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MercadoLibre has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong essential indicators, MercadoLibre is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Bright Scholar and MercadoLibre

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