Correlation Between Montrose Environmental and ESGL Holdings

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

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

Diversification Opportunities for Montrose Environmental and ESGL Holdings

-0.22

Correlation Coefficient

Montrose Environmental  ESGL Holdings

Very good diversification

The 3 months correlation between Montrose and ESGL is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Montrose Environmental Grp 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 Montrose Environmental 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 Montrose Environmental Grp 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 Montrose Environmental i.e., Montrose Environmental and ESGL Holdings go up and down completely randomly.

Pair Corralation between Montrose Environmental and ESGL Holdings

Considering the 90-day investment horizon Montrose Environmental Grp is expected to under-perform the ESGL Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Montrose Environmental Grp is 1.42 times less risky than ESGL Holdings. The stock trades about -0.14 of its potential returns per unit of risk. The ESGL Holdings Limited is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  139.00  in ESGL Holdings Limited on September 3, 2024 and sell it today you would lose (3.00) from holding ESGL Holdings Limited or give up 2.16% of portfolio value over 90 days.

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

Montrose Environmental Grp  vs.  ESGL Holdings Limited

Montrose Environmental

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Montrose Environmental Grp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

ESGL Holdings Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ESGL Holdings Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, ESGL Holdings disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Montrose Environmental and ESGL Holdings

The main advantage of trading using opposite Montrose Environmental and ESGL Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Montrose Environmental 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 Montrose Environmental Grp 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.