Correlation Between Nasdaq and EOG Resources

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

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

Diversification Opportunities for Nasdaq and EOG Resources

0.84

Correlation Coefficient

Nasdaq  EOG Resources

Very poor diversification

The 3 months correlation between Nasdaq and EOG is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc and EOG Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EOG Resources and Nasdaq 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 Nasdaq Inc 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 Nasdaq i.e., Nasdaq and EOG Resources go up and down completely randomly.

Pair Corralation between Nasdaq and EOG Resources

Given the investment horizon of 90 days Nasdaq Inc is expected to generate 1.86 times more return on investment than EOG Resources. However, Nasdaq is 1.86 times more volatile than EOG Resources. It trades about -0.18 of its potential returns per unit of risk. EOG Resources is currently generating about -0.41 per unit of risk. If you would invest  8,083  in Nasdaq Inc on September 23, 2024 and sell it today you would lose (313.00) from holding Nasdaq Inc or give up 3.87% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Nasdaq Inc  vs.  EOG Resources

Nasdaq Inc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Nasdaq is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

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 somewhat weak basic indicators, EOG Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Nasdaq and EOG Resources

The main advantage of trading using opposite Nasdaq and EOG Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 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 Nasdaq Inc 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.