Correlation Between Exxon and Imperial Oil

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

Diversification Opportunities for Exxon and Imperial Oil

0.86

Correlation Coefficient

Exxon  Imperial Oil

Very poor diversification

The 3 months correlation between Exxon and Imperial is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Imperial Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Oil 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 Imperial Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Oil has no effect on the direction of Exxon i.e., Exxon and Imperial Oil go up and down completely randomly.

Pair Corralation between Exxon and Imperial Oil

Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 0.65 times more return on investment than Imperial Oil. However, Exxon Mobil Corp is 1.54 times less risky than Imperial Oil. It trades about 0.02 of its potential returns per unit of risk. Imperial Oil is currently generating about -0.04 per unit of risk. If you would invest  10,919  in Exxon Mobil Corp on November 28, 2024 and sell it today you would earn a total of  54.00  from holding Exxon Mobil Corp or generate 0.49% 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.  Imperial Oil

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 latest conflicting 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.

Imperial Oil

Risk-Adjusted Performance

Very Weak

Over the last 90 days Imperial Oil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Exxon and Imperial Oil

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

The idea behind Exxon Mobil Corp and Imperial Oil 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.