Correlation Between Canadian Natural and EOG Resources

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

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

Diversification Opportunities for Canadian Natural and EOG Resources

0.37

Correlation Coefficient

Canadian Natural  EOG Resources

Weak diversification

The 3 months correlation between Canadian and EOG is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Natural Resources and EOG Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EOG Resources and Canadian Natural 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 Canadian Natural Resources 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 Canadian Natural i.e., Canadian Natural and EOG Resources go up and down completely randomly.

Pair Corralation between Canadian Natural and EOG Resources

Assuming the 90 days horizon Canadian Natural Resources is expected to under-perform the EOG Resources. But the stock apears to be less risky and, when comparing its historical volatility, Canadian Natural Resources is 1.28 times less risky than EOG Resources. The stock trades about -0.04 of its potential returns per unit of risk. The EOG Resources is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  11,212  in EOG Resources on September 25, 2024 and sell it today you would earn a total of  170.00  from holding EOG Resources or generate 1.52% return on investment over 90 days.

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

Canadian Natural Resources  vs.  EOG Resources

Canadian Natural Res

Risk-Adjusted Performance

0 of 100

Very Weak

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

EOG Resources

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in EOG Resources are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, EOG Resources is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Canadian Natural and EOG Resources

The main advantage of trading using opposite Canadian Natural and EOG Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian Natural 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 Canadian Natural Resources 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.