Correlation Between ESGL Holdings and Farmers

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

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

Diversification Opportunities for ESGL Holdings and Farmers

-0.42

Correlation Coefficient

ESGL Holdings  Farmers

Very good diversification

The 3 months correlation between ESGL and Farmers is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding ESGL Holdings Limited and Farmers and Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmers and Merchants and ESGL 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 ESGL Holdings Limited are associated (or correlated) with Farmers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmers and Merchants has no effect on the direction of ESGL Holdings i.e., ESGL Holdings and Farmers go up and down completely randomly.

Pair Corralation between ESGL Holdings and Farmers

Assuming the 90 days horizon ESGL Holdings Limited is expected to under-perform the Farmers. But the stock apears to be less risky and, when comparing its historical volatility, ESGL Holdings Limited is 1.06 times less risky than Farmers. The stock trades about -0.26 of its potential returns per unit of risk. The Farmers and Merchants is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  1,383  in Farmers and Merchants on September 27, 2024 and sell it today you would earn a total of  417.00  from holding Farmers and Merchants or generate 30.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	66.67%
Values	Daily Returns

ESGL Holdings Limited  vs.  Farmers and Merchants

ESGL Holdings Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ESGL Holdings Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, ESGL Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Farmers and Merchants

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Farmers and Merchants are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Farmers reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ESGL Holdings and Farmers

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

The idea behind ESGL Holdings Limited and Farmers and Merchants 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.