Correlation Between Aurora Innovation and EPAM Systems

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

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

Diversification Opportunities for Aurora Innovation and EPAM Systems

-0.55

Correlation Coefficient

Aurora Innovation  EPAM Systems

Excellent diversification

The 3 months correlation between Aurora and EPAM is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Aurora Innovation and EPAM Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EPAM Systems and Aurora Innovation 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 Aurora Innovation are associated (or correlated) with EPAM Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EPAM Systems has no effect on the direction of Aurora Innovation i.e., Aurora Innovation and EPAM Systems go up and down completely randomly.

Pair Corralation between Aurora Innovation and EPAM Systems

Considering the 90-day investment horizon Aurora Innovation is expected to generate 3.17 times more return on investment than EPAM Systems. However, Aurora Innovation is 3.17 times more volatile than EPAM Systems. It trades about 0.06 of its potential returns per unit of risk. EPAM Systems is currently generating about -0.33 per unit of risk. If you would invest  320.00  in Aurora Innovation on February 7, 2024 and sell it today you would earn a total of  13.00  from holding Aurora Innovation or generate 4.06% return on investment over 90 days.

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

Aurora Innovation  vs.  EPAM Systems

Aurora Innovation

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aurora Innovation are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Aurora Innovation reported solid returns over the last few months and may actually be approaching a breakup point.

EPAM Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EPAM Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in June 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Aurora Innovation and EPAM Systems

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

The idea behind Aurora Innovation and EPAM Systems 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.