Correlation Between Grupo Financiero and MercadoLibre

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

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

Diversification Opportunities for Grupo Financiero and MercadoLibre

-0.35

Correlation Coefficient

Grupo Financiero  MercadoLibre

Very good diversification

The 3 months correlation between Grupo and MercadoLibre is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Grupo Financiero Galicia and MercadoLibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MercadoLibre and Grupo Financiero 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 Grupo Financiero Galicia 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 Grupo Financiero i.e., Grupo Financiero and MercadoLibre go up and down completely randomly.

Pair Corralation between Grupo Financiero and MercadoLibre

Assuming the 90 days trading horizon Grupo Financiero Galicia is expected to generate 1.2 times more return on investment than MercadoLibre. However, Grupo Financiero is 1.2 times more volatile than MercadoLibre. It trades about 0.52 of its potential returns per unit of risk. MercadoLibre is currently generating about 0.27 per unit of risk. If you would invest  273,320  in Grupo Financiero Galicia on February 4, 2024 and sell it today you would earn a total of  111,575  from holding Grupo Financiero Galicia or generate 40.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Grupo Financiero Galicia  vs.  MercadoLibre

Grupo Financiero Galicia

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Grupo Financiero Galicia are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Grupo Financiero sustained solid returns over the last few months and may actually be approaching a breakup point.

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 weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Grupo Financiero and MercadoLibre

The main advantage of trading using opposite Grupo Financiero and MercadoLibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Grupo Financiero 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 Grupo Financiero Galicia 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.