Correlation Between Ford and EOG Resources
Can any of the company-specific risk be diversified away by investing in both Ford and EOG 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 Ford and EOG Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and EOG Resources, you can compare the effects of market volatilities on Ford and EOG 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 Ford with a short position of EOG Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and EOG Resources.
Diversification Opportunities for Ford and EOG Resources
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ford and EOG is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and EOG Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EOG Resources and Ford 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 Ford Motor are associated (or correlated) with EOG Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EOG Resources has no effect on the direction of Ford i.e., Ford and EOG Resources go up and down completely randomly.
Pair Corralation between Ford and EOG Resources
Taking into account the 90-day investment horizon Ford is expected to generate 1.15 times less return on investment than EOG Resources. In addition to that, Ford is 1.47 times more volatile than EOG Resources. It trades about 0.03 of its total potential returns per unit of risk. EOG Resources is currently generating about 0.06 per unit of volatility. If you would invest 10,788 in EOG Resources on August 27, 2024 and sell it today you would earn a total of 2,278 from holding EOG Resources or generate 21.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 98.8% |
| Values | Daily Returns |
Ford Motor vs. EOG Resources
Performance |
| Timeline |
| Ford Motor |
| EOG Resources |
Ford and EOG Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and EOG Resources
The main advantage of trading using opposite Ford and EOG Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, EOG 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 EOG Resources will offset losses from the drop in EOG Resources' long position.The idea behind Ford Motor and EOG Resources 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.| EOG Resources vs. Canadian Natural Resources | EOG Resources vs. Pioneer Natural Resources | EOG Resources vs. Woodside Energy Group |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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