Correlation Between Exxon and 126650DK3

Can any of the company-specific risk be diversified away by investing in both Exxon and 126650DK3 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 126650DK3 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Exxon Mobil Corp and CVS HEALTH P, you can compare the effects of market volatilities on Exxon and 126650DK3 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 126650DK3. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and 126650DK3.

Diversification Opportunities for Exxon and 126650DK3

-0.47

Correlation Coefficient

Exxon  126650DK3

Very good diversification

The 3 months correlation between Exxon and 126650DK3 is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and CVS HEALTH P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS HEALTH P 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 Corp are associated (or correlated) with 126650DK3. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVS HEALTH P has no effect on the direction of Exxon i.e., Exxon and 126650DK3 go up and down completely randomly.

Pair Corralation between Exxon and 126650DK3

Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 1.49 times more return on investment than 126650DK3. However, Exxon is 1.49 times more volatile than CVS HEALTH P. It trades about 0.04 of its potential returns per unit of risk. CVS HEALTH P is currently generating about -0.02 per unit of risk. If you would invest  11,453  in Exxon Mobil Corp on September 2, 2024 and sell it today you would earn a total of  343.00  from holding Exxon Mobil Corp or generate 2.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Exxon Mobil Corp  vs.  CVS HEALTH P

Exxon Mobil Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 3 (%) 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 latest stock price disarray, may contribute to short-term losses for the investors.

CVS HEALTH P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS HEALTH P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 126650DK3 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Exxon and 126650DK3

The main advantage of trading using opposite Exxon and 126650DK3 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon position performs unexpectedly, 126650DK3 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 126650DK3 will offset losses from the drop in 126650DK3's long position.

The idea behind Exxon Mobil Corp and CVS HEALTH P 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.