Correlation Between EOG Resources and Petroreconcavo

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

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

Diversification Opportunities for EOG Resources and Petroreconcavo

-0.21

Correlation Coefficient

EOG Resources  Petroreconcavo

Very good diversification

The 3 months correlation between EOG and Petroreconcavo is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding EOG Resources and Petroreconcavo SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petroreconcavo SA 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 Petroreconcavo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petroreconcavo SA has no effect on the direction of EOG Resources i.e., EOG Resources and Petroreconcavo go up and down completely randomly.

Pair Corralation between EOG Resources and Petroreconcavo

Assuming the 90 days trading horizon EOG Resources is expected to generate 0.23 times more return on investment than Petroreconcavo. However, EOG Resources is 4.26 times less risky than Petroreconcavo. It trades about -0.41 of its potential returns per unit of risk. Petroreconcavo SA is currently generating about -0.11 per unit of risk. 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

EOG Resources  vs.  Petroreconcavo SA

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.

Petroreconcavo SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petroreconcavo SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Petroreconcavo is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with EOG Resources and Petroreconcavo

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

The idea behind EOG Resources and Petroreconcavo SA 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.