Correlation Between EOG Resources and Pioneer Natural

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

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

Diversification Opportunities for EOG Resources and Pioneer Natural

0.66

Correlation Coefficient

EOG Resources  Pioneer Natural

Poor diversification

The 3 months correlation between EOG and Pioneer is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding EOG Resources and Pioneer Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pioneer Natural Resources 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 Pioneer Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pioneer Natural Resources has no effect on the direction of EOG Resources i.e., EOG Resources and Pioneer Natural go up and down completely randomly.

Pair Corralation between EOG Resources and Pioneer Natural

Assuming the 90 days horizon EOG Resources is expected to generate 65.99 times less return on investment than Pioneer Natural. But when comparing it to its historical volatility, EOG Resources is 26.66 times less risky than Pioneer Natural. It trades about 0.02 of its potential returns per unit of risk. Pioneer Natural Resources is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  19,847  in Pioneer Natural Resources on September 26, 2024 and sell it today you would lose (19,807) from holding Pioneer Natural Resources or give up 99.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.04%
Values	Daily Returns

EOG Resources  vs.  Pioneer Natural Resources

EOG Resources

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in EOG Resources are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, EOG Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pioneer Natural Resources

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pioneer Natural Resources are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Pioneer Natural reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EOG Resources and Pioneer Natural

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

The idea behind EOG Resources and Pioneer Natural 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.