Correlation Between Black Hills and ESGL Holdings

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

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

Diversification Opportunities for Black Hills and ESGL Holdings

0.44

Correlation Coefficient

Black Hills  ESGL Holdings

Very weak diversification

The 3 months correlation between Black and ESGL is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Black Hills 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 Black Hills 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 Black Hills 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 Black Hills i.e., Black Hills and ESGL Holdings go up and down completely randomly.

Pair Corralation between Black Hills and ESGL Holdings

Considering the 90-day investment horizon Black Hills is expected to generate 0.14 times more return on investment than ESGL Holdings. However, Black Hills is 7.3 times less risky than ESGL Holdings. It trades about -0.4 of its potential returns per unit of risk. ESGL Holdings Limited is currently generating about -0.26 per unit of risk. If you would invest  6,277  in Black Hills on October 6, 2024 and sell it today you would lose (498.00) from holding Black Hills or give up 7.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	65.0%
Values	Daily Returns

Black Hills  vs.  ESGL Holdings Limited

Black Hills

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Black Hills has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward-looking signals, Black Hills is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

ESGL Holdings Limited

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ESGL Holdings Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady essential indicators, ESGL Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Black Hills and ESGL Holdings

The main advantage of trading using opposite Black Hills and ESGL Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Black Hills 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 Black Hills 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.

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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.