Correlation Between DICKS Sporting and MercadoLibre

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

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

Diversification Opportunities for DICKS Sporting and MercadoLibre

0.27

Correlation Coefficient

DICKS Sporting  MercadoLibre

Modest diversification

The 3 months correlation between DICKS and MercadoLibre is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding DICKS Sporting Goods and MercadoLibre in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MercadoLibre and DICKS Sporting 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 DICKS Sporting Goods 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 DICKS Sporting i.e., DICKS Sporting and MercadoLibre go up and down completely randomly.

Pair Corralation between DICKS Sporting and MercadoLibre

Assuming the 90 days horizon DICKS Sporting Goods is expected to under-perform the MercadoLibre. But the stock apears to be less risky and, when comparing its historical volatility, DICKS Sporting Goods is 1.22 times less risky than MercadoLibre. The stock trades about -0.01 of its potential returns per unit of risk. The MercadoLibre is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  179,080  in MercadoLibre on September 4, 2024 and sell it today you would earn a total of  5,920  from holding MercadoLibre or generate 3.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

DICKS Sporting Goods  vs.  MercadoLibre

DICKS Sporting Goods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DICKS Sporting Goods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, DICKS Sporting is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

MercadoLibre

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MercadoLibre are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental drivers, MercadoLibre is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with DICKS Sporting and MercadoLibre

The main advantage of trading using opposite DICKS Sporting and MercadoLibre positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DICKS Sporting 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 DICKS Sporting Goods 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.