Correlation Between Epsilon Energy and SandRidge Energy

Can any of the company-specific risk be diversified away by investing in both Epsilon Energy and SandRidge 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 SandRidge 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 SandRidge Energy, you can compare the effects of market volatilities on Epsilon Energy and SandRidge 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 SandRidge Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Epsilon Energy and SandRidge Energy.

Diversification Opportunities for Epsilon Energy and SandRidge Energy

-0.35

Correlation Coefficient

Epsilon Energy  SandRidge Energy

Very good diversification

The 3 months correlation between Epsilon and SandRidge is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Epsilon Energy and SandRidge Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SandRidge Energy 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 SandRidge Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SandRidge Energy has no effect on the direction of Epsilon Energy i.e., Epsilon Energy and SandRidge Energy go up and down completely randomly.

Pair Corralation between Epsilon Energy and SandRidge Energy

Given the investment horizon of 90 days Epsilon Energy is expected to generate 4.21 times less return on investment than SandRidge Energy. In addition to that, Epsilon Energy is 1.23 times more volatile than SandRidge Energy. It trades about 0.02 of its total potential returns per unit of risk. SandRidge Energy is currently generating about 0.12 per unit of volatility. If you would invest  1,117  in SandRidge Energy on August 25, 2024 and sell it today you would earn a total of  58.00  from holding SandRidge Energy or generate 5.19% return on investment over 90 days.

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

Epsilon Energy  vs.  SandRidge Energy

Epsilon Energy

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Epsilon Energy are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Epsilon Energy may actually be approaching a critical reversion point that can send shares even higher in December 2024.

SandRidge Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SandRidge Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Epsilon Energy and SandRidge Energy

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

The idea behind Epsilon Energy and SandRidge 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..