Correlation Between Permian Resources and Epsilon Energy

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

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

Diversification Opportunities for Permian Resources and Epsilon Energy

0.87

Correlation Coefficient

Permian Resources  Epsilon Energy

Very poor diversification

The 3 months correlation between Permian and Epsilon is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Permian Resources and Epsilon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Epsilon Energy and Permian Resources 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 Permian Resources 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 Permian Resources i.e., Permian Resources and Epsilon Energy go up and down completely randomly.

Pair Corralation between Permian Resources and Epsilon Energy

Allowing for the 90-day total investment horizon Permian Resources is expected to under-perform the Epsilon Energy. But the stock apears to be less risky and, when comparing its historical volatility, Permian Resources is 1.55 times less risky than Epsilon Energy. The stock trades about -0.01 of its potential returns per unit of risk. The Epsilon Energy is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  525.00  in Epsilon Energy on January 25, 2024 and sell it today you would earn a total of  8.00  from holding Epsilon Energy or generate 1.52% return on investment over 90 days.

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

Permian Resources  vs.  Epsilon Energy

Permian Resources

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Permian Resources are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Permian Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Epsilon Energy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Epsilon Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Epsilon Energy may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Permian Resources and Epsilon Energy

The main advantage of trading using opposite Permian Resources and Epsilon Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Permian Resources 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 Permian Resources 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.

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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.