Correlation Between ESGL Holdings and Southern Michigan

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

Diversification Opportunities for ESGL Holdings and Southern Michigan

0.79

Correlation Coefficient

ESGL Holdings  Southern Michigan

Poor diversification

The 3 months correlation between ESGL and Southern is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding ESGL Holdings Limited and Southern Michigan Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Michigan Bancorp 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 Southern Michigan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Michigan Bancorp has no effect on the direction of ESGL Holdings i.e., ESGL Holdings and Southern Michigan go up and down completely randomly.

Pair Corralation between ESGL Holdings and Southern Michigan

Assuming the 90 days horizon ESGL Holdings Limited is expected to generate 157.97 times more return on investment than Southern Michigan. However, ESGL Holdings is 157.97 times more volatile than Southern Michigan Bancorp. It trades about 0.24 of its potential returns per unit of risk. Southern Michigan Bancorp is currently generating about 0.04 per unit of risk. If you would invest  2.00  in ESGL Holdings Limited on September 26, 2024 and sell it today you would lose (0.40) from holding ESGL Holdings Limited or give up 20.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.91%
Values	Daily Returns

ESGL Holdings Limited  vs.  Southern Michigan Bancorp

ESGL Holdings Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ESGL Holdings Limited are ranked lower than 9 (%) 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.

Southern Michigan Bancorp

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Michigan Bancorp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal primary indicators, Southern Michigan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ESGL Holdings and Southern Michigan

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

The idea behind ESGL Holdings Limited and Southern Michigan Bancorp 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.