Correlation Between Exxon and ProShares

Can any of the company-specific risk be diversified away by investing in both Exxon and ProShares 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 ProShares 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 ProShares SP 500, you can compare the effects of market volatilities on Exxon and ProShares 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 ProShares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and ProShares.

Diversification Opportunities for Exxon and ProShares

-0.5

Correlation Coefficient

Exxon  ProShares

Very good diversification

The 3 months correlation between Exxon and ProShares is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and ProShares SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares SP 500 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 ProShares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares SP 500 has no effect on the direction of Exxon i.e., Exxon and ProShares go up and down completely randomly.

Pair Corralation between Exxon and ProShares

Considering the 90-day investment horizon Exxon Mobil Corp is expected to under-perform the ProShares. But the stock apears to be less risky and, when comparing its historical volatility, Exxon Mobil Corp is 1.09 times less risky than ProShares. The stock trades about -0.29 of its potential returns per unit of risk. The ProShares SP 500 is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  6,493  in ProShares SP 500 on October 8, 2024 and sell it today you would lose (103.00) from holding ProShares SP 500 or give up 1.59% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Exxon Mobil Corp  vs.  ProShares SP 500

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 latest weak 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.

ProShares SP 500

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares SP 500 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, ProShares is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Exxon and ProShares

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

The idea behind Exxon Mobil Corp and ProShares SP 500 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.