Correlation Between Exxon and Vanguard Mid

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

Diversification Opportunities for Exxon and Vanguard Mid

-0.13

Correlation Coefficient

Exxon  Vanguard Mid

Good diversification

The 3 months correlation between Exxon and Vanguard is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Vanguard Mid Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mid Cap 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 Vanguard Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Mid Cap has no effect on the direction of Exxon i.e., Exxon and Vanguard Mid go up and down completely randomly.

Pair Corralation between Exxon and Vanguard Mid

Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 1.51 times more return on investment than Vanguard Mid. However, Exxon is 1.51 times more volatile than Vanguard Mid Cap Index. It trades about 0.15 of its potential returns per unit of risk. Vanguard Mid Cap Index is currently generating about -0.02 per unit of risk. If you would invest  10,482  in Exxon Mobil Corp on December 28, 2024 and sell it today you would earn a total of  1,307  from holding Exxon Mobil Corp or generate 12.47% return on investment over 90 days.

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

Exxon Mobil Corp  vs.  Vanguard Mid Cap Index

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 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.

Vanguard Mid Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Mid Cap Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard Mid is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Exxon and Vanguard Mid

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

The idea behind Exxon Mobil Corp and Vanguard Mid Cap Index 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .