Correlation Between MercadoLibre and Wayfair

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

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

Diversification Opportunities for MercadoLibre and Wayfair

-0.1

Correlation Coefficient

MercadoLibre  Wayfair

Good diversification

The 3 months correlation between MercadoLibre and Wayfair is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding MercadoLibre and Wayfair in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wayfair 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 Wayfair. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wayfair has no effect on the direction of MercadoLibre i.e., MercadoLibre and Wayfair go up and down completely randomly.

Pair Corralation between MercadoLibre and Wayfair

Given the investment horizon of 90 days MercadoLibre is expected to generate 11.25 times less return on investment than Wayfair. But when comparing it to its historical volatility, MercadoLibre is 2.33 times less risky than Wayfair. It trades about 0.07 of its potential returns per unit of risk. Wayfair is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  3,015  in Wayfair on May 6, 2025 and sell it today you would earn a total of  3,507  from holding Wayfair or generate 116.32% return on investment over 90 days.

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

MercadoLibre  vs.  Wayfair

MercadoLibre

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MercadoLibre are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady essential indicators, MercadoLibre may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Wayfair

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wayfair are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Wayfair showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MercadoLibre and Wayfair

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

The idea behind MercadoLibre and Wayfair 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.