Correlation Between Exxon Mobil and CHINA HUARONG

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

By analyzing existing cross correlation between Exxon Mobil and CHINA HUARONG ENERHD 50, you can compare the effects of market volatilities on Exxon Mobil and CHINA HUARONG 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 Mobil with a short position of CHINA HUARONG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon Mobil and CHINA HUARONG.

Diversification Opportunities for Exxon Mobil and CHINA HUARONG

0.66

Correlation Coefficient

Exxon Mobil  CHINA HUARONG

Poor diversification

The 3 months correlation between Exxon and CHINA is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil and CHINA HUARONG ENERHD 50 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA HUARONG ENERHD and Exxon Mobil 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 are associated (or correlated) with CHINA HUARONG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA HUARONG ENERHD has no effect on the direction of Exxon Mobil i.e., Exxon Mobil and CHINA HUARONG go up and down completely randomly.

Pair Corralation between Exxon Mobil and CHINA HUARONG

Assuming the 90 days trading horizon Exxon Mobil is expected to generate 0.09 times more return on investment than CHINA HUARONG. However, Exxon Mobil is 11.09 times less risky than CHINA HUARONG. It trades about -0.27 of its potential returns per unit of risk. CHINA HUARONG ENERHD 50 is currently generating about -0.03 per unit of risk. If you would invest  11,334  in Exxon Mobil on September 17, 2024 and sell it today you would lose (834.00) from holding Exxon Mobil or give up 7.36% of portfolio value over 90 days.

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

Exxon Mobil  vs.  CHINA HUARONG ENERHD 50

Exxon Mobil

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Exxon Mobil is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

CHINA HUARONG ENERHD

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA HUARONG ENERHD 50 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, CHINA HUARONG reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Exxon Mobil and CHINA HUARONG

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

The idea behind Exxon Mobil and CHINA HUARONG ENERHD 50 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.