Correlation Between Diamondback Energy and EOG Resources

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

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

Diversification Opportunities for Diamondback Energy and EOG Resources

0.6

Correlation Coefficient

Diamondback Energy  EOG Resources

Poor diversification

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

Pair Corralation between Diamondback Energy and EOG Resources

Given the investment horizon of 90 days Diamondback Energy is expected to generate 5.0 times less return on investment than EOG Resources. In addition to that, Diamondback Energy is 1.17 times more volatile than EOG Resources. It trades about 0.01 of its total potential returns per unit of risk. EOG Resources is currently generating about 0.07 per unit of volatility. 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

Diamondback Energy  vs.  EOG Resources

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.

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.

Pair Trading with Diamondback Energy and EOG Resources

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

The idea behind Diamondback Energy and EOG Resources 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.