Correlation Between GM and Exxon Mobil

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

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

Diversification Opportunities for GM and Exxon Mobil

0.72

Correlation Coefficient

GM  Exxon Mobil

Poor diversification

The 3 months correlation between GM and Exxon is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Exxon Mobil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxon Mobil and GM 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 General Motors are associated (or correlated) with Exxon Mobil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exxon Mobil has no effect on the direction of GM i.e., GM and Exxon Mobil go up and down completely randomly.

Pair Corralation between GM and Exxon Mobil

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.34 times more return on investment than Exxon Mobil. However, GM is 1.34 times more volatile than Exxon Mobil. It trades about 0.04 of its potential returns per unit of risk. Exxon Mobil is currently generating about 0.04 per unit of risk. If you would invest  3,370  in General Motors on December 4, 2024 and sell it today you would earn a total of  1,212  from holding General Motors or generate 35.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.39%
Values	Daily Returns

General Motors  vs.  Exxon Mobil

General Motors

Risk-Adjusted Performance

Very Weak

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Exxon Mobil

Risk-Adjusted Performance

Very Weak

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

Pair Trading with GM and Exxon Mobil

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

The idea behind General Motors and Exxon Mobil 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.