Correlation Between Matador Resources and Epsilon Energy

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

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

Diversification Opportunities for Matador Resources and Epsilon Energy

-0.48

Correlation Coefficient

Matador Resources  Epsilon Energy

Very good diversification

The 3 months correlation between Matador and Epsilon is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Matador Resources and Epsilon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Epsilon Energy and Matador Resources 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 Matador Resources are associated (or correlated) with Epsilon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Epsilon Energy has no effect on the direction of Matador Resources i.e., Matador Resources and Epsilon Energy go up and down completely randomly.

Pair Corralation between Matador Resources and Epsilon Energy

Given the investment horizon of 90 days Matador Resources is expected to under-perform the Epsilon Energy. In addition to that, Matador Resources is 1.05 times more volatile than Epsilon Energy. It trades about -0.05 of its total potential returns per unit of risk. Epsilon Energy is currently generating about 0.13 per unit of volatility. If you would invest  604.00  in Epsilon Energy on December 29, 2024 and sell it today you would earn a total of  113.00  from holding Epsilon Energy or generate 18.71% return on investment over 90 days.

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

Matador Resources  vs.  Epsilon Energy

Matador Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Matador Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Epsilon Energy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Epsilon Energy are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Epsilon Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Matador Resources and Epsilon Energy

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

The idea behind Matador Resources and Epsilon 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.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.