Correlation Between EOG Resources and ConocoPhillips

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Can any of the company-specific risk be diversified away by investing in both EOG Resources and ConocoPhillips 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 EOG Resources and ConocoPhillips into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EOG Resources and ConocoPhillips, you can compare the effects of market volatilities on EOG Resources and ConocoPhillips 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 EOG Resources with a short position of ConocoPhillips. Check out your portfolio center. Please also check ongoing floating volatility patterns of EOG Resources and ConocoPhillips.

Diversification Opportunities for EOG Resources and ConocoPhillips

0.4
  Correlation Coefficient

Very weak diversification

The 3 months correlation between EOG and ConocoPhillips is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding EOG Resources and ConocoPhillips in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ConocoPhillips and EOG Resources 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 EOG Resources are associated (or correlated) with ConocoPhillips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ConocoPhillips has no effect on the direction of EOG Resources i.e., EOG Resources and ConocoPhillips go up and down completely randomly.

Pair Corralation between EOG Resources and ConocoPhillips

Assuming the 90 days trading horizon EOG Resources is expected to under-perform the ConocoPhillips. But the stock apears to be less risky and, when comparing its historical volatility, EOG Resources is 3.47 times less risky than ConocoPhillips. The stock trades about -0.41 of its potential returns per unit of risk. The ConocoPhillips is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  5,161  in ConocoPhillips on September 26, 2024 and sell it today you would lose (217.00) from holding ConocoPhillips or give up 4.2% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

EOG Resources  vs.  ConocoPhillips

 Performance 
       Timeline  
EOG Resources 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in EOG Resources are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, EOG Resources sustained solid returns over the last few months and may actually be approaching a breakup point.
ConocoPhillips 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in ConocoPhillips are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ConocoPhillips may actually be approaching a critical reversion point that can send shares even higher in January 2025.

EOG Resources and ConocoPhillips Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with EOG Resources and ConocoPhillips

The main advantage of trading using opposite EOG Resources and ConocoPhillips positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EOG Resources position performs unexpectedly, ConocoPhillips 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 ConocoPhillips will offset losses from the drop in ConocoPhillips' long position.
The idea behind EOG Resources and ConocoPhillips 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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