Correlation Between Evolution Petroleum and Epsilon Energy

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

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

Diversification Opportunities for Evolution Petroleum and Epsilon Energy

0.36

Correlation Coefficient

Evolution Petroleum  Epsilon Energy

Weak diversification

The 3 months correlation between Evolution and Epsilon is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Evolution Petroleum and Epsilon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Epsilon Energy and Evolution Petroleum 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 Evolution Petroleum 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 Evolution Petroleum i.e., Evolution Petroleum and Epsilon Energy go up and down completely randomly.

Pair Corralation between Evolution Petroleum and Epsilon Energy

Considering the 90-day investment horizon Evolution Petroleum is expected to generate 0.84 times more return on investment than Epsilon Energy. However, Evolution Petroleum is 1.18 times less risky than Epsilon Energy. It trades about 0.15 of its potential returns per unit of risk. Epsilon Energy is currently generating about -0.06 per unit of risk. If you would invest  414.00  in Evolution Petroleum on May 2, 2025 and sell it today you would earn a total of  74.00  from holding Evolution Petroleum or generate 17.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Evolution Petroleum  vs.  Epsilon Energy

Evolution Petroleum

Risk-Adjusted Performance

Good

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

Epsilon Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Epsilon Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Evolution Petroleum and Epsilon Energy

The main advantage of trading using opposite Evolution Petroleum and Epsilon Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Evolution Petroleum 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 Evolution Petroleum 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.