Correlation Between Pinduoduo and MercadoLibre

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

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

Diversification Opportunities for Pinduoduo and MercadoLibre

0.57

Correlation Coefficient

Pinduoduo  MercadoLibre

Very weak diversification

The 3 months correlation between Pinduoduo and MercadoLibre is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Pinduoduo and MercadoLibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MercadoLibre and Pinduoduo 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 Pinduoduo 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 Pinduoduo i.e., Pinduoduo and MercadoLibre go up and down completely randomly.

Pair Corralation between Pinduoduo and MercadoLibre

Considering the 90-day investment horizon Pinduoduo is expected to generate 1.36 times more return on investment than MercadoLibre. However, Pinduoduo is 1.36 times more volatile than MercadoLibre. It trades about 0.25 of its potential returns per unit of risk. MercadoLibre is currently generating about 0.2 per unit of risk. If you would invest  11,762  in Pinduoduo on February 7, 2024 and sell it today you would earn a total of  2,257  from holding Pinduoduo or generate 19.19% return on investment over 90 days.

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

Pinduoduo  vs.  MercadoLibre

Pinduoduo

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pinduoduo are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Pinduoduo 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 Pinduoduo and MercadoLibre

The main advantage of trading using opposite Pinduoduo and MercadoLibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pinduoduo 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 Pinduoduo 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.

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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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.