Correlation Between Exxon and AMERICAN

Can any of the company-specific risk be diversified away by investing in both Exxon and AMERICAN 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 AMERICAN 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 AMERICAN EXPRESS 405, you can compare the effects of market volatilities on Exxon and AMERICAN 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 AMERICAN. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and AMERICAN.

Diversification Opportunities for Exxon and AMERICAN

-0.34

Correlation Coefficient

Exxon  AMERICAN

Very good diversification

The 3 months correlation between Exxon and AMERICAN is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and AMERICAN EXPRESS 405 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMERICAN EXPRESS 405 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 AMERICAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMERICAN EXPRESS 405 has no effect on the direction of Exxon i.e., Exxon and AMERICAN go up and down completely randomly.

Pair Corralation between Exxon and AMERICAN

Considering the 90-day investment horizon Exxon Mobil Corp is expected to under-perform the AMERICAN. But the stock apears to be less risky and, when comparing its historical volatility, Exxon Mobil Corp is 1.6 times less risky than AMERICAN. The stock trades about -0.26 of its potential returns per unit of risk. The AMERICAN EXPRESS 405 is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  8,669  in AMERICAN EXPRESS 405 on September 12, 2024 and sell it today you would earn a total of  901.00  from holding AMERICAN EXPRESS 405 or generate 10.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	86.36%
Values	Daily Returns

Exxon Mobil Corp  vs.  AMERICAN EXPRESS 405

Exxon Mobil Corp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 1 (%) 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 latest stock price disarray, may contribute to short-term losses for the investors.

AMERICAN EXPRESS 405

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AMERICAN EXPRESS 405 are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, AMERICAN is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Exxon and AMERICAN

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

The idea behind Exxon Mobil Corp and AMERICAN EXPRESS 405 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.