Correlation Between NYSE Composite and EPAM Systems

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Can any of the company-specific risk be diversified away by investing in both NYSE Composite 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 NYSE Composite and EPAM Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NYSE Composite and EPAM Systems, you can compare the effects of market volatilities on NYSE Composite 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 NYSE Composite with a short position of EPAM Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and EPAM Systems.

Diversification Opportunities for NYSE Composite and EPAM Systems

0.5
  Correlation Coefficient

Very weak diversification

The 3 months correlation between NYSE and EPAM is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and EPAM Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EPAM Systems and NYSE Composite 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 NYSE Composite 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 NYSE Composite i.e., NYSE Composite and EPAM Systems go up and down completely randomly.
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Pair Corralation between NYSE Composite and EPAM Systems

Assuming the 90 days trading horizon NYSE Composite is expected to generate 8.99 times less return on investment than EPAM Systems. But when comparing it to its historical volatility, NYSE Composite is 5.81 times less risky than EPAM Systems. It trades about 0.21 of its potential returns per unit of risk. EPAM Systems is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  19,129  in EPAM Systems on August 27, 2024 and sell it today you would earn a total of  5,398  from holding EPAM Systems or generate 28.22% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

NYSE Composite  vs.  EPAM Systems

 Performance 
       Timeline  

NYSE Composite and EPAM Systems Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with NYSE Composite and EPAM Systems

The main advantage of trading using opposite NYSE Composite and EPAM Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite 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 NYSE Composite 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.

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