Correlation Between EOG Resources and Occidental Petroleum

Can any of the company-specific risk be diversified away by investing in both EOG Resources and Occidental 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 Occidental 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 Occidental Petroleum, you can compare the effects of market volatilities on EOG Resources and Occidental 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 Occidental Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of EOG Resources and Occidental Petroleum.

Diversification Opportunities for EOG Resources and Occidental Petroleum

0.71

Correlation Coefficient

EOG Resources  Occidental Petroleum

Poor diversification

The 3 months correlation between EOG and Occidental is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding EOG Resources and Occidental Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Occidental Petroleum 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 Occidental Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Occidental Petroleum has no effect on the direction of EOG Resources i.e., EOG Resources and Occidental Petroleum go up and down completely randomly.

Pair Corralation between EOG Resources and Occidental Petroleum

Considering the 90-day investment horizon EOG Resources is expected to generate 1.05 times more return on investment than Occidental Petroleum. However, EOG Resources is 1.05 times more volatile than Occidental Petroleum. It trades about 0.03 of its potential returns per unit of risk. Occidental Petroleum is currently generating about -0.02 per unit of risk. If you would invest  10,460  in EOG Resources on November 19, 2024 and sell it today you would earn a total of  2,471  from holding EOG Resources or generate 23.62% 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.  Occidental Petroleum

EOG Resources

Risk-Adjusted Performance

Very Weak

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

Occidental Petroleum

Risk-Adjusted Performance

Very Weak

Over the last 90 days Occidental Petroleum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Occidental Petroleum is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with EOG Resources and Occidental Petroleum

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

The idea behind EOG Resources and Occidental Petroleum 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.