Correlation Between EOG Resources and Equity Residential

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

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

Diversification Opportunities for EOG Resources and Equity Residential

0.63

Correlation Coefficient

EOG Resources  Equity Residential

Poor diversification

The 3 months correlation between EOG and Equity is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding EOG Resources and Equity Residential in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Residential 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 Equity Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Residential has no effect on the direction of EOG Resources i.e., EOG Resources and Equity Residential go up and down completely randomly.

Pair Corralation between EOG Resources and Equity Residential

Assuming the 90 days trading horizon EOG Resources is expected to under-perform the Equity Residential. But the stock apears to be less risky and, when comparing its historical volatility, EOG Resources is 6.75 times less risky than Equity Residential. The stock trades about -0.42 of its potential returns per unit of risk. The Equity Residential is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  20,240  in Equity Residential on September 24, 2024 and sell it today you would earn a total of  1,980  from holding Equity Residential or generate 9.78% return on investment over 90 days.

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

EOG Resources  vs.  Equity Residential

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.

Equity Residential

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Residential are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Equity Residential may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with EOG Resources and Equity Residential

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

The idea behind EOG Resources and Equity Residential 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.