Correlation Between EOG Resources and Japan Petroleum

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

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

Diversification Opportunities for EOG Resources and Japan Petroleum

-0.17

Correlation Coefficient

EOG Resources  Japan Petroleum

Good diversification

The 3 months correlation between EOG and Japan is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding EOG Resources and Japan Petroleum Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Petroleum Expl 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 Japan Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Petroleum Expl has no effect on the direction of EOG Resources i.e., EOG Resources and Japan Petroleum go up and down completely randomly.

Pair Corralation between EOG Resources and Japan Petroleum

Assuming the 90 days horizon EOG Resources is expected to generate 0.79 times more return on investment than Japan Petroleum. However, EOG Resources is 1.26 times less risky than Japan Petroleum. It trades about 0.03 of its potential returns per unit of risk. Japan Petroleum Exploration is currently generating about 0.02 per unit of risk. If you would invest  10,240  in EOG Resources on October 10, 2024 and sell it today you would earn a total of  2,064  from holding EOG Resources or generate 20.16% return on investment over 90 days.

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

EOG Resources  vs.  Japan Petroleum Exploration

EOG Resources

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in EOG Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, EOG Resources is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Japan Petroleum Expl

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with EOG Resources and Japan Petroleum

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

The idea behind EOG Resources and Japan Petroleum Exploration 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.