Correlation Between Exxon and CAPITAL

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

Diversification Opportunities for Exxon and CAPITAL

0.68

Correlation Coefficient

Exxon  CAPITAL

Poor diversification

The 3 months correlation between Exxon and CAPITAL is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and CAPITAL ONE FINANCIAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAPITAL ONE FINANCIAL 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 CAPITAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAPITAL ONE FINANCIAL has no effect on the direction of Exxon i.e., Exxon and CAPITAL go up and down completely randomly.

Pair Corralation between Exxon and CAPITAL

Considering the 90-day investment horizon Exxon Mobil Corp is expected to under-perform the CAPITAL. But the stock apears to be less risky and, when comparing its historical volatility, Exxon Mobil Corp is 1.37 times less risky than CAPITAL. The stock trades about -0.32 of its potential returns per unit of risk. The CAPITAL ONE FINANCIAL is currently generating about -0.23 of returns per unit of risk over similar time horizon. If you would invest  9,770  in CAPITAL ONE FINANCIAL on October 7, 2024 and sell it today you would lose (490.00) from holding CAPITAL ONE FINANCIAL or give up 5.02% of portfolio value over 90 days.

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

Exxon Mobil Corp  vs.  CAPITAL ONE FINANCIAL

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 weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

CAPITAL ONE FINANCIAL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CAPITAL ONE FINANCIAL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CAPITAL is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Exxon and CAPITAL

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

The idea behind Exxon Mobil Corp and CAPITAL ONE FINANCIAL 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.