Correlation Between Barrel Energy and Epsilon Energy

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

By analyzing existing cross correlation between Barrel Energy and Epsilon Energy, you can compare the effects of market volatilities on Barrel Energy and Epsilon Energy 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 Barrel Energy with a short position of Epsilon Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Barrel Energy and Epsilon Energy.

Diversification Opportunities for Barrel Energy and Epsilon Energy

0.14

Correlation Coefficient

Barrel Energy  Epsilon Energy

Average diversification

The 3 months correlation between Barrel and Epsilon is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Barrel Energy and Epsilon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Epsilon Energy and Barrel Energy 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 Barrel Energy are associated (or correlated) with Epsilon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Epsilon Energy has no effect on the direction of Barrel Energy i.e., Barrel Energy and Epsilon Energy go up and down completely randomly.

Pair Corralation between Barrel Energy and Epsilon Energy

Given the investment horizon of 90 days Barrel Energy is expected to generate 6.62 times more return on investment than Epsilon Energy. However, Barrel Energy is 6.62 times more volatile than Epsilon Energy. It trades about 0.1 of its potential returns per unit of risk. Epsilon Energy is currently generating about 0.2 per unit of risk. If you would invest  0.22  in Barrel Energy on December 19, 2024 and sell it today you would earn a total of  0.07  from holding Barrel Energy or generate 31.82% return on investment over 90 days.

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

Barrel Energy  vs.  Epsilon Energy

Barrel Energy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Barrel Energy are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile essential indicators, Barrel Energy disclosed solid returns over the last few months and may actually be approaching a breakup point.

Epsilon Energy

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Epsilon Energy are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Epsilon Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Barrel Energy and Epsilon Energy

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

The idea behind Barrel Energy and Epsilon Energy 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.