Correlation Between Exxon and Western Sierra

Can any of the company-specific risk be diversified away by investing in both Exxon and Western Sierra 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 Western Sierra 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 Western Sierra Mining, you can compare the effects of market volatilities on Exxon and Western Sierra 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 Western Sierra. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and Western Sierra.

Diversification Opportunities for Exxon and Western Sierra

-0.43

Correlation Coefficient

Exxon  Western Sierra

Very good diversification

The 3 months correlation between Exxon and Western is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Western Sierra Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Sierra Mining 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 Western Sierra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Sierra Mining has no effect on the direction of Exxon i.e., Exxon and Western Sierra go up and down completely randomly.

Pair Corralation between Exxon and Western Sierra

Considering the 90-day investment horizon Exxon is expected to generate 236.46 times less return on investment than Western Sierra. But when comparing it to its historical volatility, Exxon Mobil Corp is 119.49 times less risky than Western Sierra. It trades about 0.07 of its potential returns per unit of risk. Western Sierra Mining is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1.60  in Western Sierra Mining on September 4, 2024 and sell it today you would lose (0.92) from holding Western Sierra Mining or give up 57.5% of portfolio value over 90 days.

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

Exxon Mobil Corp  vs.  Western Sierra Mining

Exxon Mobil Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 4 (%) 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.

Western Sierra Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Sierra Mining has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Exxon and Western Sierra

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

The idea behind Exxon Mobil Corp and Western Sierra Mining 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.