Correlation Between Genpact and EPAM Systems

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

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

Diversification Opportunities for Genpact and EPAM Systems

0.74

Correlation Coefficient

Genpact  EPAM Systems

Poor diversification

The 3 months correlation between Genpact and EPAM is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Genpact Limited and EPAM Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EPAM Systems and Genpact 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 Genpact Limited 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 Genpact i.e., Genpact and EPAM Systems go up and down completely randomly.

Pair Corralation between Genpact and EPAM Systems

Taking into account the 90-day investment horizon Genpact Limited is expected to under-perform the EPAM Systems. But the stock apears to be less risky and, when comparing its historical volatility, Genpact Limited is 1.86 times less risky than EPAM Systems. The stock trades about -0.03 of its potential returns per unit of risk. The EPAM Systems is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  29,606  in EPAM Systems on January 31, 2024 and sell it today you would lose (5,685) from holding EPAM Systems or give up 19.2% of portfolio value over 90 days.

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

Genpact Limited  vs.  EPAM Systems

Genpact Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Genpact Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

EPAM Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EPAM Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Genpact and EPAM Systems

The main advantage of trading using opposite Genpact and EPAM Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Genpact 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 Genpact Limited 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.