Correlation Between CARSALESCOM and Exxon Mobil

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

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

Diversification Opportunities for CARSALESCOM and Exxon Mobil

0.66

Correlation Coefficient

CARSALESCOM  Exxon Mobil

Poor diversification

The 3 months correlation between CARSALESCOM and Exxon is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding CARSALESCOM and Exxon Mobil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxon Mobil and CARSALESCOM 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 CARSALESCOM 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 CARSALESCOM i.e., CARSALESCOM and Exxon Mobil go up and down completely randomly.

Pair Corralation between CARSALESCOM and Exxon Mobil

Assuming the 90 days trading horizon CARSALESCOM is expected to generate 1.18 times more return on investment than Exxon Mobil. However, CARSALESCOM is 1.18 times more volatile than Exxon Mobil. It trades about 0.05 of its potential returns per unit of risk. Exxon Mobil is currently generating about 0.06 per unit of risk. If you would invest  1,838  in CARSALESCOM on October 7, 2024 and sell it today you would earn a total of  362.00  from holding CARSALESCOM or generate 19.7% return on investment over 90 days.

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

CARSALESCOM  vs.  Exxon Mobil

CARSALESCOM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CARSALESCOM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, CARSALESCOM is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Exxon Mobil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Exxon Mobil has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with CARSALESCOM and Exxon Mobil

The main advantage of trading using opposite CARSALESCOM and Exxon Mobil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CARSALESCOM 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 CARSALESCOM 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.