Correlation Between EOG Resources and Permian Resources

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

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

Diversification Opportunities for EOG Resources and Permian Resources

0.92

Correlation Coefficient

EOG Resources  Permian Resources

Almost no diversification

The 3 months correlation between EOG and Permian is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding EOG Resources and Permian Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Permian 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 Permian Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Permian Resources has no effect on the direction of EOG Resources i.e., EOG Resources and Permian Resources go up and down completely randomly.

Pair Corralation between EOG Resources and Permian Resources

Considering the 90-day investment horizon EOG Resources is expected to generate 1.68 times less return on investment than Permian Resources. But when comparing it to its historical volatility, EOG Resources is 1.25 times less risky than Permian Resources. It trades about 0.09 of its potential returns per unit of risk. Permian Resources is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,363  in Permian Resources on September 2, 2024 and sell it today you would earn a total of  203.00  from holding Permian Resources or generate 14.89% return on investment over 90 days.

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

EOG Resources  vs.  Permian Resources

EOG Resources

Risk-Adjusted Performance

7 of 100

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 January 2025.

Permian Resources

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Permian Resources are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Permian Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EOG Resources and Permian Resources

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

The idea behind EOG Resources and Permian 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.