Correlation Between EPAM Systems and Formula Systems

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

By analyzing existing cross correlation between EPAM Systems and Formula Systems 1985, you can compare the effects of market volatilities on EPAM Systems and Formula Systems 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 Formula Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of EPAM Systems and Formula Systems.

Diversification Opportunities for EPAM Systems and Formula Systems

0.55

Correlation Coefficient

EPAM Systems  Formula Systems

Very weak diversification

The 3 months correlation between EPAM and Formula is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding EPAM Systems and Formula Systems 1985 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Formula Systems 1985 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 Formula Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Formula Systems 1985 has no effect on the direction of EPAM Systems i.e., EPAM Systems and Formula Systems go up and down completely randomly.

Pair Corralation between EPAM Systems and Formula Systems

Given the investment horizon of 90 days EPAM Systems is expected to under-perform the Formula Systems. In addition to that, EPAM Systems is 1.06 times more volatile than Formula Systems 1985. It trades about -0.01 of its total potential returns per unit of risk. Formula Systems 1985 is currently generating about 0.09 per unit of volatility. If you would invest  5,941  in Formula Systems 1985 on September 14, 2024 and sell it today you would earn a total of  3,709  from holding Formula Systems 1985 or generate 62.43% return on investment over 90 days.

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

EPAM Systems  vs.  Formula Systems 1985

EPAM Systems

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EPAM Systems are ranked lower than 10 (%) 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.

Formula Systems 1985

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Formula Systems 1985 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Formula Systems showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EPAM Systems and Formula Systems

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

The idea behind EPAM Systems and Formula Systems 1985 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.