Correlation Between Epsilon Energy and Vermilion Energy

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

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

Diversification Opportunities for Epsilon Energy and Vermilion Energy

0.65

Correlation Coefficient

Epsilon Energy  Vermilion Energy

Poor diversification

The 3 months correlation between Epsilon and Vermilion is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Epsilon Energy and Vermilion Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vermilion Energy 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 Vermilion Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vermilion Energy has no effect on the direction of Epsilon Energy i.e., Epsilon Energy and Vermilion Energy go up and down completely randomly.

Pair Corralation between Epsilon Energy and Vermilion Energy

Given the investment horizon of 90 days Epsilon Energy is expected to generate 1.17 times more return on investment than Vermilion Energy. However, Epsilon Energy is 1.17 times more volatile than Vermilion Energy. It trades about 0.09 of its potential returns per unit of risk. Vermilion Energy is currently generating about 0.05 per unit of risk. If you would invest  508.00  in Epsilon Energy on September 3, 2024 and sell it today you would earn a total of  70.00  from holding Epsilon Energy or generate 13.78% return on investment over 90 days.

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

Epsilon Energy  vs.  Vermilion Energy

Epsilon Energy

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Epsilon Energy are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Epsilon Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Vermilion Energy

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with Epsilon Energy and Vermilion Energy

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

The idea behind Epsilon Energy and Vermilion 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.

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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.