Correlation Between MercadoLibre and LightInTheBox Holding

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

By analyzing existing cross correlation between MercadoLibre and LightInTheBox Holding Co, you can compare the effects of market volatilities on MercadoLibre and LightInTheBox Holding 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 LightInTheBox Holding. Check out your portfolio center. Please also check ongoing floating volatility patterns of MercadoLibre and LightInTheBox Holding.

Diversification Opportunities for MercadoLibre and LightInTheBox Holding

0.87

Correlation Coefficient

MercadoLibre  LightInTheBox Holding

Very poor diversification

The 3 months correlation between MercadoLibre and LightInTheBox is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding MercadoLibre and LightInTheBox Holding Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LightInTheBox Holding 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 LightInTheBox Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LightInTheBox Holding has no effect on the direction of MercadoLibre i.e., MercadoLibre and LightInTheBox Holding go up and down completely randomly.

Pair Corralation between MercadoLibre and LightInTheBox Holding

Given the investment horizon of 90 days MercadoLibre is expected to generate 0.32 times more return on investment than LightInTheBox Holding. However, MercadoLibre is 3.1 times less risky than LightInTheBox Holding. It trades about -0.04 of its potential returns per unit of risk. LightInTheBox Holding Co is currently generating about -0.06 per unit of risk. If you would invest  156,008  in MercadoLibre on February 3, 2024 and sell it today you would lose (5,409) from holding MercadoLibre or give up 3.47% of portfolio value over 90 days.

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

MercadoLibre  vs.  LightInTheBox Holding Co

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 uncertain performance in the last few months, the Stock's essential indicators remain fairly strong which may send shares a bit higher in June 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

LightInTheBox Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LightInTheBox Holding Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain 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 MercadoLibre and LightInTheBox Holding

The main advantage of trading using opposite MercadoLibre and LightInTheBox Holding positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MercadoLibre position performs unexpectedly, LightInTheBox Holding 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 LightInTheBox Holding will offset losses from the drop in LightInTheBox Holding's long position.

The idea behind MercadoLibre and LightInTheBox Holding Co 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.

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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.