Correlation Between Ford and Exxon Mobil
Can any of the company-specific risk be diversified away by investing in both Ford and Exxon Mobil 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 Ford and Exxon Mobil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Exxon Mobil, you can compare the effects of market volatilities on Ford and Exxon Mobil 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 Ford with a short position of Exxon Mobil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Exxon Mobil.
Diversification Opportunities for Ford and Exxon Mobil
0.43 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ford and Exxon is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Exxon Mobil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxon Mobil and Ford 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 Ford Motor are associated (or correlated) with Exxon Mobil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exxon Mobil has no effect on the direction of Ford i.e., Ford and Exxon Mobil go up and down completely randomly.
Pair Corralation between Ford and Exxon Mobil
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.43 times more return on investment than Exxon Mobil. However, Ford is 1.43 times more volatile than Exxon Mobil. It trades about 0.17 of its potential returns per unit of risk. Exxon Mobil is currently generating about 0.2 per unit of risk. If you would invest 1,033 in Ford Motor on August 31, 2024 and sell it today you would earn a total of 77.00 from holding Ford Motor or generate 7.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 90.91% |
| Values | Daily Returns |
Ford Motor vs. Exxon Mobil
Performance |
| Timeline |
| Ford Motor |
| Exxon Mobil |
Ford and Exxon Mobil Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Exxon Mobil
The main advantage of trading using opposite Ford and Exxon Mobil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Exxon Mobil 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 Exxon Mobil will offset losses from the drop in Exxon Mobil's long position.The idea behind Ford Motor and Exxon Mobil 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.| Exxon Mobil vs. Marvell Technology | Exxon Mobil vs. Raytheon Technologies | Exxon Mobil vs. Paycom Software | Exxon Mobil vs. HDFC Bank Limited |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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