Correlation Between Exxon and IMetal Resources

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

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

Diversification Opportunities for Exxon and IMetal Resources

-0.76

Correlation Coefficient

Exxon  IMetal Resources

Pay attention - limited upside

The 3 months correlation between Exxon and IMetal is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding EXXON MOBIL CDR and iMetal Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iMetal Resources and Exxon 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 EXXON MOBIL CDR are associated (or correlated) with IMetal Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iMetal Resources has no effect on the direction of Exxon i.e., Exxon and IMetal Resources go up and down completely randomly.

Pair Corralation between Exxon and IMetal Resources

Assuming the 90 days trading horizon EXXON MOBIL CDR is expected to generate 0.18 times more return on investment than IMetal Resources. However, EXXON MOBIL CDR is 5.65 times less risky than IMetal Resources. It trades about 0.03 of its potential returns per unit of risk. iMetal Resources is currently generating about 0.0 per unit of risk. If you would invest  2,075  in EXXON MOBIL CDR on September 12, 2024 and sell it today you would earn a total of  34.00  from holding EXXON MOBIL CDR or generate 1.64% return on investment over 90 days.

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

EXXON MOBIL CDR  vs.  iMetal Resources

EXXON MOBIL CDR

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in EXXON MOBIL CDR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Exxon is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

iMetal Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iMetal Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, IMetal Resources is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Exxon and IMetal Resources

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

The idea behind EXXON MOBIL CDR and iMetal 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.