Correlation Between Exxon and TRAVELERS

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

Diversification Opportunities for Exxon and TRAVELERS

0.34

Correlation Coefficient

Exxon  TRAVELERS

Weak diversification

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

Pair Corralation between Exxon and TRAVELERS

Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 2.25 times more return on investment than TRAVELERS. However, Exxon is 2.25 times more volatile than TRAVELERS PPTY CAS. It trades about 0.12 of its potential returns per unit of risk. TRAVELERS PPTY CAS is currently generating about -0.04 per unit of risk. If you would invest  10,546  in Exxon Mobil Corp on December 24, 2024 and sell it today you would earn a total of  1,004  from holding Exxon Mobil Corp or generate 9.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	91.67%
Values	Daily Returns

Exxon Mobil Corp  vs.  TRAVELERS PPTY CAS

Exxon Mobil Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Exxon may actually be approaching a critical reversion point that can send shares even higher in April 2025.

TRAVELERS PPTY CAS

Risk-Adjusted Performance

Insignificant

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

Pair Trading with Exxon and TRAVELERS

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

The idea behind Exxon Mobil Corp and TRAVELERS PPTY CAS 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.