Correlation Between Hess and EOG Resources

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

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

Diversification Opportunities for Hess and EOG Resources

0.26

Correlation Coefficient

Hess  EOG Resources

Modest diversification

The 3 months correlation between Hess and EOG is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Hess Corp. and EOG Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EOG Resources and Hess 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 Hess Corporation 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 Hess i.e., Hess and EOG Resources go up and down completely randomly.

Pair Corralation between Hess and EOG Resources

Assuming the 90 days trading horizon Hess is expected to generate 32.04 times less return on investment than EOG Resources. But when comparing it to its historical volatility, Hess Corporation is 38.44 times less risky than EOG Resources. It trades about 0.16 of its potential returns per unit of risk. EOG Resources is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  34,812  in EOG Resources on October 6, 2024 and sell it today you would earn a total of  3,074  from holding EOG Resources or generate 8.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Hess Corp.  vs.  EOG Resources

Hess

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hess Corporation are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Hess is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

EOG Resources

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in EOG Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, EOG Resources is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hess and EOG Resources

The main advantage of trading using opposite Hess and EOG Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hess 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 Hess Corporation 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.

Check out your portfolio center.

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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.