Correlation Between Prime Securities and MercadoLibre

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

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

Diversification Opportunities for Prime Securities and MercadoLibre

-0.01

Correlation Coefficient

Prime Securities  MercadoLibre

Good diversification

The 3 months correlation between Prime and MercadoLibre is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Prime Securities Limited and MercadoLibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MercadoLibre and Prime Securities 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 Prime Securities Limited 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 Prime Securities i.e., Prime Securities and MercadoLibre go up and down completely randomly.

Pair Corralation between Prime Securities and MercadoLibre

Assuming the 90 days trading horizon Prime Securities is expected to generate 1.33 times less return on investment than MercadoLibre. But when comparing it to its historical volatility, Prime Securities Limited is 1.57 times less risky than MercadoLibre. It trades about 0.08 of its potential returns per unit of risk. MercadoLibre is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  74,930  in MercadoLibre on February 7, 2024 and sell it today you would earn a total of  90,455  from holding MercadoLibre or generate 120.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.18%
Values	Daily Returns

Prime Securities Limited  vs.  MercadoLibre

Prime Securities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prime Securities Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Prime Securities is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 Prime Securities and MercadoLibre

The main advantage of trading using opposite Prime Securities and MercadoLibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prime Securities 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 Prime Securities Limited 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.