Correlation Between Prairie Provident and Epsilon Energy

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

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

Diversification Opportunities for Prairie Provident and Epsilon Energy

0.17

Correlation Coefficient

Prairie Provident  Epsilon Energy

Average diversification

The 3 months correlation between Prairie and Epsilon is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Prairie Provident Resources and Epsilon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Epsilon Energy and Prairie Provident 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 Prairie Provident 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 Prairie Provident i.e., Prairie Provident and Epsilon Energy go up and down completely randomly.

Pair Corralation between Prairie Provident and Epsilon Energy

Assuming the 90 days horizon Prairie Provident Resources is expected to generate 16.55 times more return on investment than Epsilon Energy. However, Prairie Provident is 16.55 times more volatile than Epsilon Energy. It trades about 0.14 of its potential returns per unit of risk. Epsilon Energy is currently generating about 0.13 per unit of risk. If you would invest  1.06  in Prairie Provident Resources on December 29, 2024 and sell it today you would earn a total of  1.46  from holding Prairie Provident Resources or generate 137.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.72%
Values	Daily Returns

Prairie Provident Resources  vs.  Epsilon Energy

Prairie Provident

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prairie Provident Resources are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Prairie Provident reported solid returns over the last few months and may actually be approaching a breakup point.

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 Prairie Provident and Epsilon Energy

The main advantage of trading using opposite Prairie Provident and Epsilon Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prairie Provident 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 Prairie Provident 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.