Correlation Between APA and Epsilon Energy
Can any of the company-specific risk be diversified away by investing in both APA 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 APA and Epsilon Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between APA Corporation and Epsilon Energy, you can compare the effects of market volatilities on APA 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 APA with a short position of Epsilon Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of APA and Epsilon Energy.
Diversification Opportunities for APA and Epsilon Energy
-0.13 | Correlation Coefficient |
Good diversification
The 3 months correlation between APA and Epsilon is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding APA Corp. and Epsilon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Epsilon Energy and APA 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 APA Corporation 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 APA i.e., APA and Epsilon Energy go up and down completely randomly.
Pair Corralation between APA and Epsilon Energy
Considering the 90-day investment horizon APA Corporation is expected to under-perform the Epsilon Energy. In addition to that, APA is 1.24 times more volatile than Epsilon Energy. It trades about -0.06 of its total potential returns per unit of risk. Epsilon Energy is currently generating about 0.05 per unit of volatility. If you would invest 517.00 in Epsilon Energy on September 3, 2024 and sell it today you would earn a total of 61.00 from holding Epsilon Energy or generate 11.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
APA Corp. vs. Epsilon Energy
Performance |
| Timeline |
| APA Corporation |
| Epsilon Energy |
APA and Epsilon Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with APA and Epsilon Energy
The main advantage of trading using opposite APA and Epsilon Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if APA 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 APA Corporation 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.| Epsilon Energy vs. Granite Ridge Resources | Epsilon Energy vs. North European Oil | Epsilon Energy vs. CNX Resources Corp | Epsilon Energy vs. GeoPark |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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