Correlation Between Exxon and Dimensional Equity

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

By analyzing existing cross correlation between Exxon Mobil Corp and Dimensional Equity ETF, you can compare the effects of market volatilities on Exxon and Dimensional Equity 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 Dimensional Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and Dimensional Equity.

Diversification Opportunities for Exxon and Dimensional Equity

0.63

Correlation Coefficient

Exxon  Dimensional Equity

Poor diversification

The 3 months correlation between Exxon and Dimensional is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Dimensional Equity ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional Equity ETF 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 Corp are associated (or correlated) with Dimensional Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional Equity ETF has no effect on the direction of Exxon i.e., Exxon and Dimensional Equity go up and down completely randomly.

Pair Corralation between Exxon and Dimensional Equity

Considering the 90-day investment horizon Exxon is expected to generate 3.0 times less return on investment than Dimensional Equity. In addition to that, Exxon is 1.71 times more volatile than Dimensional Equity ETF. It trades about 0.02 of its total potential returns per unit of risk. Dimensional Equity ETF is currently generating about 0.12 per unit of volatility. If you would invest  4,244  in Dimensional Equity ETF on September 4, 2024 and sell it today you would earn a total of  2,359  from holding Dimensional Equity ETF or generate 55.58% return on investment over 90 days.

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

Exxon Mobil Corp  vs.  Dimensional Equity ETF

Exxon Mobil Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Dimensional Equity ETF

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Equity ETF are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Dimensional Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Exxon and Dimensional Equity

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

The idea behind Exxon Mobil Corp and Dimensional Equity ETF 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.