Correlation Between APA and EOG Resources

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

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

Diversification Opportunities for APA and EOG Resources

-0.16

Correlation Coefficient

APA  EOG Resources

Good diversification

The 3 months correlation between APA and EOG is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding APA Corp. and EOG Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EOG Resources and APA 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 APA Corporation 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 APA i.e., APA and EOG Resources go up and down completely randomly.

Pair Corralation between APA and EOG Resources

Assuming the 90 days trading horizon APA Corporation is expected to under-perform the EOG Resources. In addition to that, APA is 3.64 times more volatile than EOG Resources. It trades about -0.11 of its total potential returns per unit of risk. EOG Resources is currently generating about -0.41 per unit of volatility. If you would invest  39,780  in EOG Resources on September 23, 2024 and sell it today you would lose (1,894) from holding EOG Resources or give up 4.76% of portfolio value over 90 days.

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

APA Corp.  vs.  EOG Resources

APA Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days APA Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, APA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

EOG Resources

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EOG Resources are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, EOG Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with APA and EOG Resources

The main advantage of trading using opposite APA and EOG Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if APA 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 APA Corporation 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.