Correlation Between ESGL Holdings and KAR Auction

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

Diversification Opportunities for ESGL Holdings and KAR Auction

-0.16

Correlation Coefficient

ESGL Holdings  KAR Auction

Good diversification

The 3 months correlation between ESGL and KAR is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding ESGL Holdings Limited and KAR Auction Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KAR Auction Services 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 KAR Auction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KAR Auction Services has no effect on the direction of ESGL Holdings i.e., ESGL Holdings and KAR Auction go up and down completely randomly.

Pair Corralation between ESGL Holdings and KAR Auction

Given the investment horizon of 90 days ESGL Holdings Limited is expected to under-perform the KAR Auction. But the etf apears to be less risky and, when comparing its historical volatility, ESGL Holdings Limited is 1.27 times less risky than KAR Auction. The etf trades about -0.15 of its potential returns per unit of risk. The KAR Auction Services is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  1,651  in KAR Auction Services on August 19, 2024 and sell it today you would earn a total of  335.00  from holding KAR Auction Services or generate 20.29% return on investment over 90 days.

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

ESGL Holdings Limited  vs.  KAR Auction Services

ESGL Holdings Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ESGL Holdings Limited are ranked lower than 7 (%) 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.

KAR Auction Services

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KAR Auction Services are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, KAR Auction reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ESGL Holdings and KAR Auction

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

The idea behind ESGL Holdings Limited and KAR Auction Services 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.