Correlation Between Flexible Solutions and ESGL Holdings

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

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

Diversification Opportunities for Flexible Solutions and ESGL Holdings

-0.62

Correlation Coefficient

Flexible Solutions  ESGL Holdings

Excellent diversification

The 3 months correlation between Flexible and ESGL is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Flexible Solutions Internation 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 Flexible Solutions 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 Flexible Solutions International 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 Flexible Solutions i.e., Flexible Solutions and ESGL Holdings go up and down completely randomly.

Pair Corralation between Flexible Solutions and ESGL Holdings

Considering the 90-day investment horizon Flexible Solutions is expected to generate 1.62 times less return on investment than ESGL Holdings. But when comparing it to its historical volatility, Flexible Solutions International is 1.85 times less risky than ESGL Holdings. It trades about 0.12 of its potential returns per unit of risk. ESGL Holdings Limited is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1.60  in ESGL Holdings Limited on December 19, 2024 and sell it today you would earn a total of  0.39  from holding ESGL Holdings Limited or generate 24.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	71.67%
Values	Daily Returns

Flexible Solutions Internation  vs.  ESGL Holdings Limited

Flexible Solutions

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Flexible Solutions International are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Flexible Solutions demonstrated solid returns over the last few months and may actually be approaching a breakup point.

ESGL Holdings Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ESGL Holdings Limited are ranked lower than 8 (%) 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 Flexible Solutions and ESGL Holdings

The main advantage of trading using opposite Flexible Solutions and ESGL Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Flexible Solutions 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 Flexible Solutions International 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.