Correlation Between Epsilon Energy and Vista Oil

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

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

Diversification Opportunities for Epsilon Energy and Vista Oil

0.27

Correlation Coefficient

Epsilon Energy  Vista Oil

Modest diversification

The 3 months correlation between Epsilon and Vista is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Epsilon Energy and Vista Oil Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vista Oil Gas 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 Vista Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vista Oil Gas has no effect on the direction of Epsilon Energy i.e., Epsilon Energy and Vista Oil go up and down completely randomly.

Pair Corralation between Epsilon Energy and Vista Oil

Given the investment horizon of 90 days Epsilon Energy is expected to generate 2.81 times less return on investment than Vista Oil. But when comparing it to its historical volatility, Epsilon Energy is 1.43 times less risky than Vista Oil. It trades about 0.06 of its potential returns per unit of risk. Vista Oil Gas is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,990  in Vista Oil Gas on September 20, 2024 and sell it today you would earn a total of  2,501  from holding Vista Oil Gas or generate 83.65% return on investment over 90 days.

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

Epsilon Energy  vs.  Vista Oil Gas

Epsilon Energy

Risk-Adjusted Performance

4 of 100

Modest

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

Vista Oil Gas

Risk-Adjusted Performance

7 of 100

Modest

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

Pair Trading with Epsilon Energy and Vista Oil

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

The idea behind Epsilon Energy and Vista Oil Gas 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.