Correlation Between Exxon and Searchlight Resources

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

Diversification Opportunities for Exxon and Searchlight Resources

-0.34

Correlation Coefficient

Exxon  Searchlight Resources

Very good diversification

The 3 months correlation between Exxon and Searchlight is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Searchlight Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Searchlight Resources 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 Searchlight Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Searchlight Resources has no effect on the direction of Exxon i.e., Exxon and Searchlight Resources go up and down completely randomly.

Pair Corralation between Exxon and Searchlight Resources

Considering the 90-day investment horizon Exxon is expected to generate 44.52 times less return on investment than Searchlight Resources. But when comparing it to its historical volatility, Exxon Mobil Corp is 15.84 times less risky than Searchlight Resources. It trades about 0.03 of its potential returns per unit of risk. Searchlight Resources is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  0.88  in Searchlight Resources on September 13, 2024 and sell it today you would lose (0.14) from holding Searchlight Resources or give up 15.91% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Exxon Mobil Corp  vs.  Searchlight Resources

Exxon Mobil Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 2 (%) 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 recent stock price disarray, may contribute to short-term losses for the investors.

Searchlight Resources

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Searchlight Resources are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Searchlight Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Exxon and Searchlight Resources

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

The idea behind Exxon Mobil Corp and Searchlight Resources 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.