Correlation Between Evolution Petroleum and EQT

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

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

Diversification Opportunities for Evolution Petroleum and EQT

-0.38

Correlation Coefficient

Evolution Petroleum  EQT

Very good diversification

The 3 months correlation between Evolution and EQT is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Evolution Petroleum and EQT Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EQT Corporation and Evolution Petroleum 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 Evolution Petroleum are associated (or correlated) with EQT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EQT Corporation has no effect on the direction of Evolution Petroleum i.e., Evolution Petroleum and EQT go up and down completely randomly.

Pair Corralation between Evolution Petroleum and EQT

Considering the 90-day investment horizon Evolution Petroleum is expected to generate 4.26 times less return on investment than EQT. But when comparing it to its historical volatility, Evolution Petroleum is 1.03 times less risky than EQT. It trades about 0.04 of its potential returns per unit of risk. EQT Corporation is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  3,360  in EQT Corporation on February 19, 2024 and sell it today you would earn a total of  757.00  from holding EQT Corporation or generate 22.53% return on investment over 90 days.

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

Evolution Petroleum  vs.  EQT Corp.

Evolution Petroleum

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Evolution Petroleum are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Evolution Petroleum is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

EQT Corporation

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EQT Corporation are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, EQT unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Evolution Petroleum and EQT

The main advantage of trading using opposite Evolution Petroleum and EQT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Evolution Petroleum position performs unexpectedly, EQT 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 EQT will offset losses from the drop in EQT's long position.

The idea behind Evolution Petroleum and EQT Corporation 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.