Correlation Between Formula Systems and EPAM Systems

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

By analyzing existing cross correlation between Formula Systems 1985 and EPAM Systems, you can compare the effects of market volatilities on Formula Systems 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 Formula Systems with a short position of EPAM Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Formula Systems and EPAM Systems.

Diversification Opportunities for Formula Systems and EPAM Systems

0.52

Correlation Coefficient

Formula Systems  EPAM Systems

Very weak diversification

The 3 months correlation between Formula and EPAM is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Formula Systems 1985 and EPAM Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EPAM Systems and Formula Systems 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 Formula Systems 1985 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 Formula Systems i.e., Formula Systems and EPAM Systems go up and down completely randomly.

Pair Corralation between Formula Systems and EPAM Systems

Assuming the 90 days horizon Formula Systems 1985 is expected to generate 1.67 times more return on investment than EPAM Systems. However, Formula Systems is 1.67 times more volatile than EPAM Systems. It trades about 0.28 of its potential returns per unit of risk. EPAM Systems is currently generating about 0.08 per unit of risk. If you would invest  8,120  in Formula Systems 1985 on September 13, 2024 and sell it today you would earn a total of  1,530  from holding Formula Systems 1985 or generate 18.84% return on investment over 90 days.

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

Formula Systems 1985  vs.  EPAM Systems

Formula Systems 1985

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Formula Systems 1985 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Formula Systems showed solid returns over the last few months and may actually be approaching a breakup point.

EPAM Systems

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EPAM Systems are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, EPAM Systems displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Formula Systems and EPAM Systems

The main advantage of trading using opposite Formula Systems and EPAM Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Formula Systems 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 Formula Systems 1985 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.

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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 Anywhere module to track or share privately all of your investments from the convenience of any device.