Correlation Between Epsilon Energy and XXL Energy

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

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

Diversification Opportunities for Epsilon Energy and XXL Energy

-0.51

Correlation Coefficient

Epsilon Energy  XXL Energy

Excellent diversification

The 3 months correlation between Epsilon and XXL is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Epsilon Energy and XXL Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XXL Energy Corp and Epsilon Energy 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 Epsilon Energy are associated (or correlated) with XXL Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XXL Energy Corp has no effect on the direction of Epsilon Energy i.e., Epsilon Energy and XXL Energy go up and down completely randomly.

Pair Corralation between Epsilon Energy and XXL Energy

Given the investment horizon of 90 days Epsilon Energy is expected to generate 0.2 times more return on investment than XXL Energy. However, Epsilon Energy is 5.02 times less risky than XXL Energy. It trades about 0.1 of its potential returns per unit of risk. XXL Energy Corp is currently generating about -0.13 per unit of risk. If you would invest  508.00  in Epsilon Energy on September 1, 2024 and sell it today you would earn a total of  74.00  from holding Epsilon Energy or generate 14.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Epsilon Energy  vs.  XXL Energy Corp

Epsilon Energy

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Epsilon Energy are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Epsilon Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

XXL Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days XXL Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Epsilon Energy and XXL Energy

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

The idea behind Epsilon Energy and XXL Energy 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.