Correlation Between GeoPark and Epsilon Energy

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

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

Diversification Opportunities for GeoPark and Epsilon Energy

0.38

Correlation Coefficient

GeoPark  Epsilon Energy

Weak diversification

The 3 months correlation between GeoPark and Epsilon is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding GeoPark and Epsilon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Epsilon Energy and GeoPark 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 GeoPark are associated (or correlated) with Epsilon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Epsilon Energy has no effect on the direction of GeoPark i.e., GeoPark and Epsilon Energy go up and down completely randomly.

Pair Corralation between GeoPark and Epsilon Energy

Given the investment horizon of 90 days GeoPark is expected to under-perform the Epsilon Energy. In addition to that, GeoPark is 1.26 times more volatile than Epsilon Energy. It trades about -0.01 of its total potential returns per unit of risk. Epsilon Energy is currently generating about 0.0 per unit of volatility. If you would invest  612.00  in Epsilon Energy on September 3, 2024 and sell it today you would lose (30.00) from holding Epsilon Energy or give up 4.9% of portfolio value over 90 days.

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

GeoPark  vs.  Epsilon Energy

GeoPark

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GeoPark are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, GeoPark disclosed solid returns over the last few months and may actually be approaching a breakup point.

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 uncertain basic indicators, Epsilon Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GeoPark and Epsilon Energy

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

The idea behind GeoPark and Epsilon Energy 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.