Correlation Between EOG Resources and Magnolia Oil

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

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

Diversification Opportunities for EOG Resources and Magnolia Oil

0.89

Correlation Coefficient

EOG Resources  Magnolia Oil

Very poor diversification

The 3 months correlation between EOG and Magnolia is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding EOG Resources and Magnolia Oil Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magnolia Oil Gas 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 Magnolia Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magnolia Oil Gas has no effect on the direction of EOG Resources i.e., EOG Resources and Magnolia Oil go up and down completely randomly.

Pair Corralation between EOG Resources and Magnolia Oil

Considering the 90-day investment horizon EOG Resources is expected to generate 0.68 times more return on investment than Magnolia Oil. However, EOG Resources is 1.47 times less risky than Magnolia Oil. It trades about -0.5 of its potential returns per unit of risk. Magnolia Oil Gas is currently generating about -0.68 per unit of risk. If you would invest  13,198  in EOG Resources on September 24, 2024 and sell it today you would lose (1,294) from holding EOG Resources or give up 9.8% of portfolio value over 90 days.

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

EOG Resources  vs.  Magnolia Oil Gas

EOG Resources

Risk-Adjusted Performance

0 of 100

Very Weak

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

Magnolia Oil Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Magnolia Oil Gas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with EOG Resources and Magnolia Oil

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

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