Correlation Between Exxon and Franklin FTSE

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

Diversification Opportunities for Exxon and Franklin FTSE

0.8

Correlation Coefficient

Exxon  Franklin FTSE

Very poor diversification

The 3 months correlation between Exxon and Franklin is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Franklin FTSE Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin FTSE Japan 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 Franklin FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin FTSE Japan has no effect on the direction of Exxon i.e., Exxon and Franklin FTSE go up and down completely randomly.

Pair Corralation between Exxon and Franklin FTSE

Considering the 90-day investment horizon Exxon is expected to generate 31.9 times less return on investment than Franklin FTSE. But when comparing it to its historical volatility, Exxon Mobil Corp is 1.22 times less risky than Franklin FTSE. It trades about 0.01 of its potential returns per unit of risk. Franklin FTSE Japan is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  3,083  in Franklin FTSE Japan on September 5, 2024 and sell it today you would earn a total of  106.00  from holding Franklin FTSE Japan or generate 3.44% return on investment over 90 days.

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

Exxon Mobil Corp  vs.  Franklin FTSE Japan

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.

Franklin FTSE Japan

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin FTSE Japan are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward-looking indicators, Franklin FTSE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Exxon and Franklin FTSE

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

The idea behind Exxon Mobil Corp and Franklin FTSE Japan 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.