Correlation Between Exxon and North American

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

Diversification Opportunities for Exxon and North American

-0.41

Correlation Coefficient

Exxon  North American

Very good diversification

The 3 months correlation between Exxon and North is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding EXXON MOBIL CDR and North American Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North American Const 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 North American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North American Const has no effect on the direction of Exxon i.e., Exxon and North American go up and down completely randomly.

Pair Corralation between Exxon and North American

Assuming the 90 days trading horizon Exxon is expected to generate 6.37 times less return on investment than North American. In addition to that, Exxon is 2.01 times more volatile than North American Construction. It trades about 0.0 of its total potential returns per unit of risk. North American Construction is currently generating about 0.06 per unit of volatility. If you would invest  1,707  in North American Construction on September 21, 2024 and sell it today you would earn a total of  1,236  from holding North American Construction or generate 72.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	97.78%
Values	Daily Returns

EXXON MOBIL CDR  vs.  North American Construction

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.

North American Const

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in North American Construction are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, North American displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Exxon and North American

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

The idea behind EXXON MOBIL CDR and North American Construction 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.