Correlation Between Vale SA and Exxon Mobil

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

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

Diversification Opportunities for Vale SA and Exxon Mobil

-0.21

Correlation Coefficient

Vale SA  Exxon Mobil

Very good diversification

The 3 months correlation between Vale and Exxon is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Vale SA and Exxon Mobil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxon Mobil and Vale SA 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 Vale SA 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 Vale SA i.e., Vale SA and Exxon Mobil go up and down completely randomly.

Pair Corralation between Vale SA and Exxon Mobil

Assuming the 90 days trading horizon Vale SA is expected to generate 1.11 times more return on investment than Exxon Mobil. However, Vale SA is 1.11 times more volatile than Exxon Mobil. It trades about -0.12 of its potential returns per unit of risk. Exxon Mobil is currently generating about -0.15 per unit of risk. If you would invest  5,766  in Vale SA on September 25, 2024 and sell it today you would lose (281.00) from holding Vale SA or give up 4.87% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Vale SA  vs.  Exxon Mobil

Vale SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vale SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Exxon Mobil

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Exxon Mobil is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vale SA and Exxon Mobil

The main advantage of trading using opposite Vale SA and Exxon Mobil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vale SA 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 Vale SA 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.

Check out your portfolio center.

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.