Correlation Between PDD Holdings and MercadoLibre

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

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

Diversification Opportunities for PDD Holdings and MercadoLibre

-0.13

Correlation Coefficient

PDD Holdings  MercadoLibre

Good diversification

The 3 months correlation between PDD and MercadoLibre is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding PDD Holdings and MercadoLibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MercadoLibre and PDD Holdings 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 PDD Holdings 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 PDD Holdings i.e., PDD Holdings and MercadoLibre go up and down completely randomly.

Pair Corralation between PDD Holdings and MercadoLibre

Considering the 90-day investment horizon PDD Holdings is expected to under-perform the MercadoLibre. But the stock apears to be less risky and, when comparing its historical volatility, PDD Holdings is 1.29 times less risky than MercadoLibre. The stock trades about -0.25 of its potential returns per unit of risk. The MercadoLibre is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  205,593  in MercadoLibre on August 25, 2024 and sell it today you would lose (5,093) from holding MercadoLibre or give up 2.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

PDD Holdings  vs.  MercadoLibre

PDD Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PDD Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, PDD Holdings is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

MercadoLibre

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MercadoLibre are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong essential indicators, MercadoLibre is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with PDD Holdings and MercadoLibre

The main advantage of trading using opposite PDD Holdings and MercadoLibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PDD Holdings 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 PDD Holdings 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.