Correlation Between Epsilon Energy and Prairie Provident

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

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

Diversification Opportunities for Epsilon Energy and Prairie Provident

-0.26

Correlation Coefficient

Epsilon Energy  Prairie Provident

Very good diversification

The 3 months correlation between Epsilon and Prairie is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Epsilon Energy and Prairie Provident Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prairie Provident and Epsilon 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 Epsilon Energy are associated (or correlated) with Prairie Provident. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prairie Provident has no effect on the direction of Epsilon Energy i.e., Epsilon Energy and Prairie Provident go up and down completely randomly.

Pair Corralation between Epsilon Energy and Prairie Provident

Given the investment horizon of 90 days Epsilon Energy is expected to under-perform the Prairie Provident. But the stock apears to be less risky and, when comparing its historical volatility, Epsilon Energy is 4.47 times less risky than Prairie Provident. The stock trades about -0.12 of its potential returns per unit of risk. The Prairie Provident Resources is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2.15  in Prairie Provident Resources on September 5, 2024 and sell it today you would lose (0.02) from holding Prairie Provident Resources or give up 0.93% of portfolio value over 90 days.

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

Epsilon Energy  vs.  Prairie Provident Resources

Epsilon Energy

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Epsilon Energy are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Epsilon Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Prairie Provident

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Prairie Provident Resources are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Prairie Provident reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Epsilon Energy and Prairie Provident

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

The idea behind Epsilon Energy and Prairie Provident Resources 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 Transaction History module to view history of all your transactions and understand their impact on performance.