Correlation Between San Juan and Epsilon Energy

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

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

Diversification Opportunities for San Juan and Epsilon Energy

0.79

Correlation Coefficient

San Juan  Epsilon Energy

Poor diversification

The 3 months correlation between San and Epsilon is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding San Juan Basin and Epsilon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Epsilon Energy and San Juan 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 San Juan Basin 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 San Juan i.e., San Juan and Epsilon Energy go up and down completely randomly.

Pair Corralation between San Juan and Epsilon Energy

Considering the 90-day investment horizon San Juan Basin is expected to generate 1.16 times more return on investment than Epsilon Energy. However, San Juan is 1.16 times more volatile than Epsilon Energy. It trades about 0.2 of its potential returns per unit of risk. Epsilon Energy is currently generating about 0.1 per unit of risk. If you would invest  322.00  in San Juan Basin on September 2, 2024 and sell it today you would earn a total of  125.00  from holding San Juan Basin or generate 38.82% return on investment over 90 days.

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

San Juan Basin  vs.  Epsilon Energy

San Juan Basin

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in San Juan Basin are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating forward-looking indicators, San Juan unveiled 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 weak basic indicators, Epsilon Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with San Juan and Epsilon Energy

The main advantage of trading using opposite San Juan and Epsilon Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if San Juan 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 San Juan Basin 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.