Correlation Between EOG Resources and Diamondback Energy

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

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

Diversification Opportunities for EOG Resources and Diamondback Energy

0.6

Correlation Coefficient

EOG Resources  Diamondback Energy

Poor diversification

The 3 months correlation between EOG and Diamondback is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding EOG Resources and Diamondback Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamondback Energy 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 Diamondback Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamondback Energy has no effect on the direction of EOG Resources i.e., EOG Resources and Diamondback Energy go up and down completely randomly.

Pair Corralation between EOG Resources and Diamondback Energy

Considering the 90-day investment horizon EOG Resources is expected to generate 0.85 times more return on investment than Diamondback Energy. However, EOG Resources is 1.17 times less risky than Diamondback Energy. It trades about 0.07 of its potential returns per unit of risk. Diamondback Energy is currently generating about 0.01 per unit of risk. If you would invest  11,973  in EOG Resources on December 29, 2024 and sell it today you would earn a total of  700.00  from holding EOG Resources or generate 5.85% 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.  Diamondback Energy

EOG Resources

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in EOG Resources are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, EOG Resources may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Diamondback Energy

Risk-Adjusted Performance

Very Weak

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

Pair Trading with EOG Resources and Diamondback Energy

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

The idea behind EOG Resources and Diamondback Energy 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.