Correlation Between ESGEN Acquisition and L Catterton

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

By analyzing existing cross correlation between ESGEN Acquisition Corp and L Catterton Asia, you can compare the effects of market volatilities on ESGEN Acquisition and L Catterton 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 ESGEN Acquisition with a short position of L Catterton. Check out your portfolio center. Please also check ongoing floating volatility patterns of ESGEN Acquisition and L Catterton.

Diversification Opportunities for ESGEN Acquisition and L Catterton

0.83

Correlation Coefficient

ESGEN Acquisition  L Catterton

Very poor diversification

The 3 months correlation between ESGEN and LCAA is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding ESGEN Acquisition Corp and L Catterton Asia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on L Catterton Asia and ESGEN Acquisition 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 ESGEN Acquisition Corp are associated (or correlated) with L Catterton. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of L Catterton Asia has no effect on the direction of ESGEN Acquisition i.e., ESGEN Acquisition and L Catterton go up and down completely randomly.

Pair Corralation between ESGEN Acquisition and L Catterton

Assuming the 90 days horizon ESGEN Acquisition Corp is expected to generate 3.5 times more return on investment than L Catterton. However, ESGEN Acquisition is 3.5 times more volatile than L Catterton Asia. It trades about 0.06 of its potential returns per unit of risk. L Catterton Asia is currently generating about 0.14 per unit of risk. If you would invest  1,034  in ESGEN Acquisition Corp on September 16, 2024 and sell it today you would earn a total of  67.00  from holding ESGEN Acquisition Corp or generate 6.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

ESGEN Acquisition Corp  vs.  L Catterton Asia

ESGEN Acquisition Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ESGEN Acquisition Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, ESGEN Acquisition is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

L Catterton Asia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days L Catterton Asia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, L Catterton is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ESGEN Acquisition and L Catterton

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

The idea behind ESGEN Acquisition Corp and L Catterton Asia 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.