Correlation Between National Beverage and EOG Resources

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

By analyzing existing cross correlation between National Beverage Corp and EOG Resources, you can compare the effects of market volatilities on National Beverage 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 National Beverage with a short position of EOG Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Beverage and EOG Resources.

Diversification Opportunities for National Beverage and EOG Resources

0.3

Correlation Coefficient

National Beverage  EOG Resources

Weak diversification

The 3 months correlation between National and EOG is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding National Beverage Corp and EOG Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EOG Resources and National Beverage 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 National Beverage Corp 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 National Beverage i.e., National Beverage and EOG Resources go up and down completely randomly.

Pair Corralation between National Beverage and EOG Resources

Assuming the 90 days horizon National Beverage Corp is expected to under-perform the EOG Resources. But the stock apears to be less risky and, when comparing its historical volatility, National Beverage Corp is 1.05 times less risky than EOG Resources. The stock trades about -0.01 of its potential returns per unit of risk. The EOG Resources is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  11,402  in EOG Resources on October 24, 2024 and sell it today you would earn a total of  1,596  from holding EOG Resources or generate 14.0% return on investment over 90 days.

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

National Beverage Corp  vs.  EOG Resources

National Beverage Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, National Beverage is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

EOG Resources

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EOG Resources are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, EOG Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Beverage and EOG Resources

The main advantage of trading using opposite National Beverage and EOG Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Beverage 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 National Beverage Corp 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.

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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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.