Correlation Between EP Financial and Aeon Metals

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

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

Diversification Opportunities for EP Financial and Aeon Metals

0.0

Correlation Coefficient

EP Financial  Aeon Metals

Pay attention - limited upside

The 3 months correlation between EP1 and Aeon is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding EP Financial Group and Aeon Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aeon Metals and EP Financial 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 EP Financial Group are associated (or correlated) with Aeon Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aeon Metals has no effect on the direction of EP Financial i.e., EP Financial and Aeon Metals go up and down completely randomly.

Pair Corralation between EP Financial and Aeon Metals

Assuming the 90 days trading horizon EP Financial is expected to generate 1.21 times less return on investment than Aeon Metals. But when comparing it to its historical volatility, EP Financial Group is 2.74 times less risky than Aeon Metals. It trades about 0.02 of its potential returns per unit of risk. Aeon Metals is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1.10  in Aeon Metals on September 4, 2024 and sell it today you would lose (0.60) from holding Aeon Metals or give up 54.55% of portfolio value over 90 days.

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

EP Financial Group  vs.  Aeon Metals

EP Financial Group

Risk-Adjusted Performance

4 of 100

Insignificant

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

Aeon Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aeon Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Aeon Metals is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with EP Financial and Aeon Metals

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

The idea behind EP Financial Group and Aeon Metals 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.