Correlation Between Exxon and Global Energy

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

Diversification Opportunities for Exxon and Global Energy

-0.12

Correlation Coefficient

Exxon  Global Energy

Good diversification

The 3 months correlation between Exxon and Global is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Global Energy Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Energy Metals 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 Global Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Energy Metals has no effect on the direction of Exxon i.e., Exxon and Global Energy go up and down completely randomly.

Pair Corralation between Exxon and Global Energy

Considering the 90-day investment horizon Exxon is expected to generate 17.49 times less return on investment than Global Energy. But when comparing it to its historical volatility, Exxon Mobil Corp is 9.63 times less risky than Global Energy. It trades about 0.09 of its potential returns per unit of risk. Global Energy Metals is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1.25  in Global Energy Metals on November 29, 2024 and sell it today you would earn a total of  0.44  from holding Global Energy Metals or generate 35.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Exxon Mobil Corp  vs.  Global Energy Metals

Exxon Mobil Corp

Risk-Adjusted Performance

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.

Global Energy Metals

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global Energy Metals are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Global Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Exxon and Global Energy

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

The idea behind Exxon Mobil Corp and Global Energy Metals 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 Global Correlations module to find global opportunities by holding instruments from different markets.