Correlation Between EOG Resources and SM Energy

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

Diversification Opportunities for EOG Resources and SM Energy

0.49

Correlation Coefficient

EOG Resources  SM Energy

Very weak diversification

The 3 months correlation between EOG and SM Energy is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding EOG Resources and SM Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM 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 SM Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Energy has no effect on the direction of EOG Resources i.e., EOG Resources and SM Energy go up and down completely randomly.

Pair Corralation between EOG Resources and SM Energy

Considering the 90-day investment horizon EOG Resources is expected to generate 0.57 times more return on investment than SM Energy. However, EOG Resources is 1.77 times less risky than SM Energy. It trades about 0.09 of its potential returns per unit of risk. SM Energy Co is currently generating about -0.11 per unit of risk. If you would invest  11,955  in EOG Resources on December 27, 2024 and sell it today you would earn a total of  963.00  from holding EOG Resources or generate 8.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

EOG Resources  vs.  SM Energy Co

EOG Resources

Risk-Adjusted Performance

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 nearly unsteady basic indicators, EOG Resources may actually be approaching a critical reversion point that can send shares even higher in April 2025.

SM Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days SM Energy Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with EOG Resources and SM Energy

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

The idea behind EOG Resources and SM Energy Co 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.