Correlation Between EP Financial and Retail Food

Can any of the company-specific risk be diversified away by investing in both EP Financial and Retail Food 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 Retail Food 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 Retail Food Group, you can compare the effects of market volatilities on EP Financial and Retail Food 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 Retail Food. Check out your portfolio center. Please also check ongoing floating volatility patterns of EP Financial and Retail Food.

Diversification Opportunities for EP Financial and Retail Food

0.28

Correlation Coefficient

EP Financial  Retail Food

Modest diversification

The 3 months correlation between EP1 and Retail is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding EP Financial Group and Retail Food Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Retail Food Group 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 Retail Food. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Retail Food Group has no effect on the direction of EP Financial i.e., EP Financial and Retail Food go up and down completely randomly.

Pair Corralation between EP Financial and Retail Food

Assuming the 90 days trading horizon EP Financial Group is expected to generate 1.42 times more return on investment than Retail Food. However, EP Financial is 1.42 times more volatile than Retail Food Group. It trades about 0.1 of its potential returns per unit of risk. Retail Food Group is currently generating about 0.05 per unit of risk. If you would invest  41.00  in EP Financial Group on September 19, 2024 and sell it today you would earn a total of  8.00  from holding EP Financial Group or generate 19.51% return on investment over 90 days.

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

EP Financial Group  vs.  Retail Food Group

EP Financial Group

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EP Financial Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, EP Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Retail Food Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Retail Food Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Retail Food may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with EP Financial and Retail Food

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

The idea behind EP Financial Group and Retail Food Group 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.