Correlation Between Exxon and XXL Energy

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

Diversification Opportunities for Exxon and XXL Energy

0.0

Correlation Coefficient

Exxon  XXL Energy

Pay attention - limited upside

The 3 months correlation between Exxon and XXL is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and XXL Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XXL Energy 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 XXL Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XXL Energy Corp has no effect on the direction of Exxon i.e., Exxon and XXL Energy go up and down completely randomly.

Pair Corralation between Exxon and XXL Energy

Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 0.28 times more return on investment than XXL Energy. However, Exxon Mobil Corp is 3.52 times less risky than XXL Energy. It trades about 0.02 of its potential returns per unit of risk. XXL Energy Corp is currently generating about -0.05 per unit of risk. If you would invest  9,950  in Exxon Mobil Corp on December 2, 2024 and sell it today you would earn a total of  1,183  from holding Exxon Mobil Corp or generate 11.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	99.0%
Values	Daily Returns

Exxon Mobil Corp  vs.  XXL Energy Corp

Exxon Mobil Corp

Risk-Adjusted Performance

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 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.

XXL Energy Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days XXL Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, XXL Energy 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 XXL Energy

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

The idea behind Exxon Mobil Corp and XXL Energy 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.