Correlation Between BKV and Epsilon Energy

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

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

Diversification Opportunities for BKV and Epsilon Energy

-0.66

Correlation Coefficient

BKV  Epsilon Energy

Excellent diversification

The 3 months correlation between BKV and Epsilon is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding BKV Corp. and Epsilon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Epsilon Energy and BKV 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 BKV Corporation 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 BKV i.e., BKV and Epsilon Energy go up and down completely randomly.

Pair Corralation between BKV and Epsilon Energy

Considering the 90-day investment horizon BKV Corporation is expected to generate 0.7 times more return on investment than Epsilon Energy. However, BKV Corporation is 1.43 times less risky than Epsilon Energy. It trades about 0.27 of its potential returns per unit of risk. Epsilon Energy is currently generating about 0.13 per unit of risk. If you would invest  1,800  in BKV Corporation on September 13, 2024 and sell it today you would earn a total of  523.00  from holding BKV Corporation or generate 29.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	85.71%
Values	Daily Returns

BKV Corp.  vs.  Epsilon Energy

BKV Corporation

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BKV Corporation are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, BKV showed solid returns over the last few months and may actually be approaching a breakup point.

Epsilon Energy

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Epsilon Energy are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Epsilon Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BKV and Epsilon Energy

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

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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.