Correlation Between GM and Exxon

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

Diversification Opportunities for GM and Exxon

0.42

Correlation Coefficient

GM  Exxon

Very weak diversification

The 3 months correlation between GM and Exxon is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and EXXON MOBIL CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EXXON MOBIL CDR 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. 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 CDR has no effect on the direction of GM i.e., GM and Exxon go up and down completely randomly.

Pair Corralation between GM and Exxon

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Exxon. In addition to that, GM is 1.48 times more volatile than EXXON MOBIL CDR. It trades about -0.07 of its total potential returns per unit of risk. EXXON MOBIL CDR is currently generating about -0.05 per unit of volatility. If you would invest  2,184  in EXXON MOBIL CDR on December 1, 2024 and sell it today you would lose (111.00) from holding EXXON MOBIL CDR or give up 5.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

General Motors  vs.  EXXON MOBIL CDR

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 latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

EXXON MOBIL CDR

Risk-Adjusted Performance

Very Weak

Over the last 90 days EXXON MOBIL CDR has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with GM and Exxon

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

The idea behind General Motors and EXXON MOBIL CDR 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.