Correlation Between Avalon Holdings and ESGL Holdings

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

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

Diversification Opportunities for Avalon Holdings and ESGL Holdings

0.54

Correlation Coefficient

Avalon Holdings  ESGL Holdings

Very weak diversification

The 3 months correlation between Avalon and ESGL is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Avalon Holdings and ESGL Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESGL Holdings Limited and Avalon 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 Avalon Holdings are associated (or correlated) with ESGL Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESGL Holdings Limited has no effect on the direction of Avalon Holdings i.e., Avalon Holdings and ESGL Holdings go up and down completely randomly.

Pair Corralation between Avalon Holdings and ESGL Holdings

Considering the 90-day investment horizon Avalon Holdings is expected to generate 601.23 times less return on investment than ESGL Holdings. But when comparing it to its historical volatility, Avalon Holdings is 70.91 times less risky than ESGL Holdings. It trades about 0.03 of its potential returns per unit of risk. ESGL Holdings Limited is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  20,438  in ESGL Holdings Limited on September 4, 2024 and sell it today you would lose (20,436) from holding ESGL Holdings Limited or give up 99.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	87.16%
Values	Daily Returns

Avalon Holdings  vs.  ESGL Holdings Limited

Avalon Holdings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Avalon Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Avalon Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

ESGL Holdings Limited

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ESGL Holdings Limited are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, ESGL Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Avalon Holdings and ESGL Holdings

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

The idea behind Avalon Holdings and ESGL Holdings Limited 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.