Correlation Between EPAM Systems and Data Storage

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

By analyzing existing cross correlation between EPAM Systems and Data Storage Corp, you can compare the effects of market volatilities on EPAM Systems and Data Storage 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 EPAM Systems with a short position of Data Storage. Check out your portfolio center. Please also check ongoing floating volatility patterns of EPAM Systems and Data Storage.

Diversification Opportunities for EPAM Systems and Data Storage

0.65

Correlation Coefficient

EPAM Systems  Data Storage

Poor diversification

The 3 months correlation between EPAM and Data is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding EPAM Systems and Data Storage Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Data Storage Corp and EPAM Systems 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 EPAM Systems are associated (or correlated) with Data Storage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Data Storage Corp has no effect on the direction of EPAM Systems i.e., EPAM Systems and Data Storage go up and down completely randomly.

Pair Corralation between EPAM Systems and Data Storage

Given the investment horizon of 90 days EPAM Systems is expected to generate 0.49 times more return on investment than Data Storage. However, EPAM Systems is 2.05 times less risky than Data Storage. It trades about 0.34 of its potential returns per unit of risk. Data Storage Corp is currently generating about 0.12 per unit of risk. If you would invest  18,865  in EPAM Systems on September 1, 2024 and sell it today you would earn a total of  5,527  from holding EPAM Systems or generate 29.3% return on investment over 90 days.

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

EPAM Systems  vs.  Data Storage Corp

EPAM Systems

Risk-Adjusted Performance

11 of 100

Good

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

Data Storage Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Data Storage Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Data Storage unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EPAM Systems and Data Storage

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

The idea behind EPAM Systems and Data Storage Corp 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.