Correlation Between Exxon Mobil and Imperial Oil

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

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

Diversification Opportunities for Exxon Mobil and Imperial Oil

0.4

Correlation Coefficient

Exxon Mobil  Imperial Oil

Very weak diversification

The 3 months correlation between Exxon and Imperial is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil and Imperial Oil Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Oil Limited 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 Imperial Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Oil Limited has no effect on the direction of Exxon Mobil i.e., Exxon Mobil and Imperial Oil go up and down completely randomly.

Pair Corralation between Exxon Mobil and Imperial Oil

Assuming the 90 days trading horizon Exxon Mobil is expected to generate 1.53 times less return on investment than Imperial Oil. But when comparing it to its historical volatility, Exxon Mobil is 1.18 times less risky than Imperial Oil. It trades about 0.07 of its potential returns per unit of risk. Imperial Oil Limited is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  5,869  in Imperial Oil Limited on December 22, 2024 and sell it today you would earn a total of  571.00  from holding Imperial Oil Limited or generate 9.73% return on investment over 90 days.

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

Exxon Mobil  vs.  Imperial Oil Limited

Exxon Mobil

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Exxon Mobil may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Imperial Oil Limited

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Oil Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Imperial Oil may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Exxon Mobil and Imperial Oil

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

The idea behind Exxon Mobil and Imperial Oil Limited 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.