Correlation Between Exxon and Diamond Estates

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

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

Diversification Opportunities for Exxon and Diamond Estates

0.29

Correlation Coefficient

Exxon  Diamond Estates

Modest diversification

The 3 months correlation between Exxon and Diamond is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding EXXON MOBIL CDR and Diamond Estates Wines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Estates Wines and Exxon 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 CDR are associated (or correlated) with Diamond Estates. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Estates Wines has no effect on the direction of Exxon i.e., Exxon and Diamond Estates go up and down completely randomly.

Pair Corralation between Exxon and Diamond Estates

Assuming the 90 days trading horizon EXXON MOBIL CDR is expected to under-perform the Diamond Estates. But the stock apears to be less risky and, when comparing its historical volatility, EXXON MOBIL CDR is 4.78 times less risky than Diamond Estates. The stock trades about -0.59 of its potential returns per unit of risk. The Diamond Estates Wines is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  22.00  in Diamond Estates Wines on September 21, 2024 and sell it today you would lose (1.00) from holding Diamond Estates Wines or give up 4.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

EXXON MOBIL CDR  vs.  Diamond Estates Wines

EXXON MOBIL CDR

Risk-Adjusted Performance

0 of 100

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

Diamond Estates Wines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamond Estates Wines 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 basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Exxon and Diamond Estates

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

The idea behind EXXON MOBIL CDR and Diamond Estates Wines 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.