Correlation Between Centessa Pharmaceuticals and ESGL Holdings

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

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

Diversification Opportunities for Centessa Pharmaceuticals and ESGL Holdings

0.63

Correlation Coefficient

Centessa Pharmaceuticals  ESGL Holdings

Poor diversification

The 3 months correlation between Centessa and ESGL is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Centessa Pharmaceuticals PLC 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 Centessa Pharmaceuticals 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 Centessa Pharmaceuticals PLC 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 Centessa Pharmaceuticals i.e., Centessa Pharmaceuticals and ESGL Holdings go up and down completely randomly.

Pair Corralation between Centessa Pharmaceuticals and ESGL Holdings

Given the investment horizon of 90 days Centessa Pharmaceuticals PLC is expected to generate 0.46 times more return on investment than ESGL Holdings. However, Centessa Pharmaceuticals PLC is 2.16 times less risky than ESGL Holdings. It trades about -0.07 of its potential returns per unit of risk. ESGL Holdings Limited is currently generating about -0.34 per unit of risk. If you would invest  1,806  in Centessa Pharmaceuticals PLC on October 8, 2024 and sell it today you would lose (105.00) from holding Centessa Pharmaceuticals PLC or give up 5.81% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	68.42%
Values	Daily Returns

Centessa Pharmaceuticals PLC  vs.  ESGL Holdings Limited

Centessa Pharmaceuticals

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Centessa Pharmaceuticals PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Centessa Pharmaceuticals may actually be approaching a critical reversion point that can send shares even higher in February 2025.

ESGL Holdings Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ESGL Holdings Limited are ranked lower than 4 (%) 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 Centessa Pharmaceuticals and ESGL Holdings

The main advantage of trading using opposite Centessa Pharmaceuticals and ESGL Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Centessa Pharmaceuticals 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 Centessa Pharmaceuticals PLC 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.