Correlation Between Rentokil Initial and ESGL Holdings

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

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

Diversification Opportunities for Rentokil Initial and ESGL Holdings

0.58

Correlation Coefficient

Rentokil Initial  ESGL Holdings

Very weak diversification

The 3 months correlation between Rentokil and ESGL is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Rentokil Initial PLC 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 Rentokil Initial 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 Rentokil Initial PLC 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 Rentokil Initial i.e., Rentokil Initial and ESGL Holdings go up and down completely randomly.

Pair Corralation between Rentokil Initial and ESGL Holdings

Considering the 90-day investment horizon Rentokil Initial PLC is expected to generate 0.22 times more return on investment than ESGL Holdings. However, Rentokil Initial PLC is 4.46 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 -0.26 per unit of risk. If you would invest  2,610  in Rentokil Initial PLC on October 5, 2024 and sell it today you would lose (110.00) from holding Rentokil Initial PLC or give up 4.21% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	61.9%
Values	Daily Returns

Rentokil Initial PLC  vs.  ESGL Holdings Limited

Rentokil Initial PLC

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rentokil Initial PLC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Rentokil Initial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

ESGL Holdings Limited

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ESGL Holdings Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady essential indicators, ESGL Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rentokil Initial and ESGL Holdings

The main advantage of trading using opposite Rentokil Initial and ESGL Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rentokil Initial 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 Rentokil Initial PLC 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.