Can any of the company-specific risk be diversified away by investing in both EPlus and Model N 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 EPlus and Model N into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ePlus inc and Model N, you can compare the effects of market volatilities on EPlus and Model N 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 EPlus with a short position of Model N. Check out your portfolio center. Please also check ongoing floating volatility patterns of EPlus and Model N.
Diversification Opportunities for EPlus and Model N
The 3 months correlation between EPlus and Model is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding ePlus inc and Model N in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Model N and EPlus 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 ePlus inc are associated (or correlated) with Model N. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Model N has no effect on the direction of EPlus i.e., EPlus and Model N go up and down completely randomly.
Given the investment horizon of 90 days ePlus inc is expected to under-perform the Model N. In addition to that, EPlus is 11.84 times more volatile than Model N. It trades about -0.25 of its total potential returns per unit of risk. Model N is currently generating about 0.3 per unit of volatility. If you would invest 2,969 in Model N on March 6, 2024 and sell it today you would earn a total of 18.00 from holding Model N or generate 0.61% return on investment over 90 days.
Over the last 90 days ePlus inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, EPlus is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.
Compared to the overall equity markets, risk-adjusted returns on investments in Model N are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Model N displayed solid returns over the last few months and may actually be approaching a breakup point.