Correlation Between EP Financial and MFF Capital

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

By analyzing existing cross correlation between EP Financial Group and MFF Capital Investments, you can compare the effects of market volatilities on EP Financial and MFF Capital 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 EP Financial with a short position of MFF Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of EP Financial and MFF Capital.

Diversification Opportunities for EP Financial and MFF Capital

0.41

Correlation Coefficient

EP Financial  MFF Capital

Very weak diversification

The 3 months correlation between EP1 and MFF is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding EP Financial Group and MFF Capital Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MFF Capital Investments and EP Financial 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 EP Financial Group are associated (or correlated) with MFF Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MFF Capital Investments has no effect on the direction of EP Financial i.e., EP Financial and MFF Capital go up and down completely randomly.

Pair Corralation between EP Financial and MFF Capital

Assuming the 90 days trading horizon EP Financial is expected to generate 4.42 times less return on investment than MFF Capital. In addition to that, EP Financial is 2.35 times more volatile than MFF Capital Investments. It trades about 0.03 of its total potential returns per unit of risk. MFF Capital Investments is currently generating about 0.33 per unit of volatility. If you would invest  381.00  in MFF Capital Investments on September 5, 2024 and sell it today you would earn a total of  52.00  from holding MFF Capital Investments or generate 13.65% return on investment over 90 days.

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

EP Financial Group  vs.  MFF Capital Investments

EP Financial Group

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in EP Financial Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, EP Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

MFF Capital Investments

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MFF Capital Investments are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, MFF Capital unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EP Financial and MFF Capital

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

The idea behind EP Financial Group and MFF Capital Investments 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.