Correlation Between Epsilon Energy and California Resources

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

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

Diversification Opportunities for Epsilon Energy and California Resources

0.1

Correlation Coefficient

Epsilon Energy  California Resources

Average diversification

The 3 months correlation between Epsilon and California is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Epsilon Energy and California Resources Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Resources 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 California Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Resources Corp has no effect on the direction of Epsilon Energy i.e., Epsilon Energy and California Resources go up and down completely randomly.

Pair Corralation between Epsilon Energy and California Resources

Given the investment horizon of 90 days Epsilon Energy is expected to under-perform the California Resources. But the stock apears to be less risky and, when comparing its historical volatility, Epsilon Energy is 1.03 times less risky than California Resources. The stock trades about -0.07 of its potential returns per unit of risk. The California Resources Corp is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  3,509  in California Resources Corp on May 1, 2025 and sell it today you would earn a total of  1,367  from holding California Resources Corp or generate 38.96% return on investment over 90 days.

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

Epsilon Energy  vs.  California Resources Corp

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.

California Resources Corp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in California Resources Corp are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, California Resources exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Epsilon Energy and California Resources

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

The idea behind Epsilon Energy and California Resources 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.