Correlation Between Exxon and IShares Emerging

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

Diversification Opportunities for Exxon and IShares Emerging

0.67

Correlation Coefficient

Exxon  IShares Emerging

Poor diversification

The 3 months correlation between Exxon and IShares is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and iShares Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Emerging Markets 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 IShares Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Emerging Markets has no effect on the direction of Exxon i.e., Exxon and IShares Emerging go up and down completely randomly.

Pair Corralation between Exxon and IShares Emerging

Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 0.93 times more return on investment than IShares Emerging. However, Exxon Mobil Corp is 1.07 times less risky than IShares Emerging. It trades about -0.03 of its potential returns per unit of risk. iShares Emerging Markets is currently generating about -0.05 per unit of risk. If you would invest  11,610  in Exxon Mobil Corp on October 24, 2024 and sell it today you would lose (378.00) from holding Exxon Mobil Corp or give up 3.26% of portfolio value over 90 days.

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

Exxon Mobil Corp  vs.  iShares Emerging Markets

Exxon Mobil Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Exxon Mobil Corp has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

iShares Emerging Markets

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Emerging Markets has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, IShares Emerging is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Exxon and IShares Emerging

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

The idea behind Exxon Mobil Corp and iShares Emerging Markets 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.