Correlation Between Heritage Financial and EPAM Systems

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

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

Diversification Opportunities for Heritage Financial and EPAM Systems

0.86

Correlation Coefficient

Heritage Financial  EPAM Systems

Very poor diversification

The 3 months correlation between Heritage and EPAM is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Heritage Financial and EPAM Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EPAM Systems and Heritage 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 Heritage Financial 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 Heritage Financial i.e., Heritage Financial and EPAM Systems go up and down completely randomly.

Pair Corralation between Heritage Financial and EPAM Systems

Given the investment horizon of 90 days Heritage Financial is expected to under-perform the EPAM Systems. In addition to that, Heritage Financial is 1.15 times more volatile than EPAM Systems. It trades about -0.22 of its total potential returns per unit of risk. EPAM Systems is currently generating about -0.06 per unit of volatility. If you would invest  24,392  in EPAM Systems on September 30, 2024 and sell it today you would lose (545.00) from holding EPAM Systems or give up 2.23% of portfolio value over 90 days.

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

Heritage Financial  vs.  EPAM Systems

Heritage Financial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Heritage Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

EPAM Systems

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EPAM Systems are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, EPAM Systems displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Heritage Financial and EPAM Systems

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

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 Bonds Directory module to find actively traded corporate debentures issued by US companies.