Correlation Between Exxon Mobil and Chevron

Can any of the company-specific risk be diversified away by investing in both Exxon Mobil and Chevron 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 Mobil and Chevron into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Exxon Mobil and Chevron, you can compare the effects of market volatilities on Exxon Mobil and Chevron 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 Mobil with a short position of Chevron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon Mobil and Chevron.

Diversification Opportunities for Exxon Mobil and Chevron

0.72

Correlation Coefficient

Exxon Mobil  Chevron

Poor diversification

The 3 months correlation between Exxon and Chevron is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil and Chevron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron and Exxon Mobil 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 are associated (or correlated) with Chevron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron has no effect on the direction of Exxon Mobil i.e., Exxon Mobil and Chevron go up and down completely randomly.

Pair Corralation between Exxon Mobil and Chevron

Assuming the 90 days trading horizon Exxon Mobil is expected to generate 2.71 times less return on investment than Chevron. In addition to that, Exxon Mobil is 1.2 times more volatile than Chevron. It trades about 0.06 of its total potential returns per unit of risk. Chevron is currently generating about 0.19 per unit of volatility. If you would invest  12,583  in Chevron on September 16, 2024 and sell it today you would earn a total of  2,127  from holding Chevron or generate 16.9% return on investment over 90 days.

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

Exxon Mobil  vs.  Chevron

Exxon Mobil

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Exxon Mobil is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Chevron

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Chevron unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Exxon Mobil and Chevron

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

The idea behind Exxon Mobil and Chevron 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.