Correlation Between ESGL Holdings and Wex

Can any of the company-specific risk be diversified away by investing in both ESGL Holdings and Wex 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 Wex 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 Wex Inc, you can compare the effects of market volatilities on ESGL Holdings and Wex 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 Wex. Check out your portfolio center. Please also check ongoing floating volatility patterns of ESGL Holdings and Wex.

Diversification Opportunities for ESGL Holdings and Wex

0.21

Correlation Coefficient

ESGL Holdings  Wex

Modest diversification

The 3 months correlation between ESGL and Wex is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding ESGL Holdings Limited and Wex Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wex Inc 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 Wex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wex Inc has no effect on the direction of ESGL Holdings i.e., ESGL Holdings and Wex go up and down completely randomly.

Pair Corralation between ESGL Holdings and Wex

Assuming the 90 days horizon ESGL Holdings Limited is expected to generate 5.09 times more return on investment than Wex. However, ESGL Holdings is 5.09 times more volatile than Wex Inc. It trades about 0.04 of its potential returns per unit of risk. Wex Inc is currently generating about -0.05 per unit of risk. If you would invest  1.40  in ESGL Holdings Limited on December 27, 2024 and sell it today you would lose (0.27) from holding ESGL Holdings Limited or give up 19.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	73.33%
Values	Daily Returns

ESGL Holdings Limited  vs.  Wex Inc

ESGL Holdings Limited

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ESGL Holdings Limited are ranked lower than 3 (%) 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.

Wex Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wex Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with ESGL Holdings and Wex

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

The idea behind ESGL Holdings Limited and Wex Inc 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.