Correlation Between Vital Energy and EOG Resources

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

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

Diversification Opportunities for Vital Energy and EOG Resources

0.79

Correlation Coefficient

Vital Energy  EOG Resources

Poor diversification

The 3 months correlation between Vital and EOG is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Vital Energy and EOG Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EOG Resources and Vital Energy 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 Vital Energy 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 Vital Energy i.e., Vital Energy and EOG Resources go up and down completely randomly.

Pair Corralation between Vital Energy and EOG Resources

Given the investment horizon of 90 days Vital Energy is expected to under-perform the EOG Resources. In addition to that, Vital Energy is 2.37 times more volatile than EOG Resources. It trades about -0.24 of its total potential returns per unit of risk. EOG Resources is currently generating about -0.55 per unit of volatility. If you would invest  13,635  in EOG Resources on September 23, 2024 and sell it today you would lose (1,731) from holding EOG Resources or give up 12.7% of portfolio value over 90 days.

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

Vital Energy  vs.  EOG Resources

Vital Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vital Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Vital Energy is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

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.

Pair Trading with Vital Energy and EOG Resources

The main advantage of trading using opposite Vital Energy and EOG Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vital Energy 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 Vital Energy 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.