Correlation Between EPAM Systems and Monolithic Power

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

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

Diversification Opportunities for EPAM Systems and Monolithic Power

-0.89

Correlation Coefficient

EPAM Systems  Monolithic Power

Pay attention - limited upside

The 3 months correlation between EPAM and Monolithic is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding EPAM Systems and Monolithic Power Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monolithic Power Systems 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 Monolithic Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monolithic Power Systems has no effect on the direction of EPAM Systems i.e., EPAM Systems and Monolithic Power go up and down completely randomly.

Pair Corralation between EPAM Systems and Monolithic Power

Given the investment horizon of 90 days EPAM Systems is expected to generate 0.66 times more return on investment than Monolithic Power. However, EPAM Systems is 1.53 times less risky than Monolithic Power. It trades about 0.12 of its potential returns per unit of risk. Monolithic Power Systems is currently generating about -0.13 per unit of risk. If you would invest  20,400  in EPAM Systems on September 5, 2024 and sell it today you would earn a total of  3,651  from holding EPAM Systems or generate 17.9% return on investment over 90 days.

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

EPAM Systems  vs.  Monolithic Power Systems

EPAM Systems

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EPAM Systems are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, EPAM Systems displayed solid returns over the last few months and may actually be approaching a breakup point.

Monolithic Power Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Monolithic Power Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with EPAM Systems and Monolithic Power

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

The idea behind EPAM Systems and Monolithic Power Systems 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.