Correlation Between Digimarc and EPAM Systems

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

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

Diversification Opportunities for Digimarc and EPAM Systems

0.81

Correlation Coefficient

Digimarc  EPAM Systems

Very poor diversification

The 3 months correlation between Digimarc and EPAM is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Digimarc and EPAM Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EPAM Systems and Digimarc 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 Digimarc are associated (or correlated) with EPAM Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EPAM Systems has no effect on the direction of Digimarc i.e., Digimarc and EPAM Systems go up and down completely randomly.

Pair Corralation between Digimarc and EPAM Systems

Given the investment horizon of 90 days Digimarc is expected to under-perform the EPAM Systems. In addition to that, Digimarc is 2.71 times more volatile than EPAM Systems. It trades about -0.19 of its total potential returns per unit of risk. EPAM Systems is currently generating about -0.18 per unit of volatility. If you would invest  23,468  in EPAM Systems on December 28, 2024 and sell it today you would lose (6,045) from holding EPAM Systems or give up 25.76% of portfolio value over 90 days.

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

Digimarc  vs.  EPAM Systems

Digimarc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Digimarc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

EPAM Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days EPAM Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Digimarc and EPAM Systems

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

The idea behind Digimarc and EPAM Systems 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.