Correlation Between Exxon and First American
Can any of the company-specific risk be diversified away by investing in both Exxon and First American 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 First American 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 First American Funds, you can compare the effects of market volatilities on Exxon and First American 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 First American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and First American.
Diversification Opportunities for Exxon and First American
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Exxon and First is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and First American Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First American Funds 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 First American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First American Funds has no effect on the direction of Exxon i.e., Exxon and First American go up and down completely randomly.
Pair Corralation between Exxon and First American
Considering the 90-day investment horizon Exxon is expected to generate 15.66 times less return on investment than First American. But when comparing it to its historical volatility, Exxon Mobil Corp is 13.76 times less risky than First American. It trades about 0.03 of its potential returns per unit of risk. First American Funds is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 378.00 in First American Funds on September 12, 2024 and sell it today you would lose (278.00) from holding First American Funds or give up 73.54% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Exxon Mobil Corp vs. First American Funds
Performance |
| Timeline |
| Exxon Mobil Corp |
| First American Funds |
Exxon and First American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Exxon and First American
The main advantage of trading using opposite Exxon and First American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon position performs unexpectedly, First American 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 First American will offset losses from the drop in First American's long position.| Exxon vs. Shell PLC ADR | Exxon vs. BP PLC ADR | Exxon vs. Suncor Energy | Exxon vs. Petroleo Brasileiro Petrobras |
| First American vs. T Rowe Price | First American vs. Blackrock High Yield | First American vs. Jpmorgan High Yield | First American vs. Prudential High Yield |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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