Correlation Between Exxon and Tourmaline Oil

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

Diversification Opportunities for Exxon and Tourmaline Oil

0.44

Correlation Coefficient

Exxon  Tourmaline Oil

Very weak diversification

The 3 months correlation between Exxon and Tourmaline is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Tourmaline Oil Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tourmaline Oil Corp 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 Tourmaline Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tourmaline Oil Corp has no effect on the direction of Exxon i.e., Exxon and Tourmaline Oil go up and down completely randomly.

Pair Corralation between Exxon and Tourmaline Oil

Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 0.87 times more return on investment than Tourmaline Oil. However, Exxon Mobil Corp is 1.15 times less risky than Tourmaline Oil. It trades about 0.14 of its potential returns per unit of risk. Tourmaline Oil Corp is currently generating about 0.03 per unit of risk. If you would invest  10,482  in Exxon Mobil Corp on December 29, 2024 and sell it today you would earn a total of  1,291  from holding Exxon Mobil Corp or generate 12.32% return on investment over 90 days.

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

Exxon Mobil Corp  vs.  Tourmaline Oil Corp

Exxon Mobil Corp

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Exxon displayed solid returns over the last few months and may actually be approaching a breakup point.

Tourmaline Oil Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tourmaline Oil Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Tourmaline Oil is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Exxon and Tourmaline Oil

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

The idea behind Exxon Mobil Corp and Tourmaline Oil Corp 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.