Correlation Between Exxon and SPDR SP
Can any of the company-specific risk be diversified away by investing in both Exxon and SPDR SP 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 SPDR SP 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 SPDR SP China, you can compare the effects of market volatilities on Exxon and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and SPDR SP.
Diversification Opportunities for Exxon and SPDR SP
Poor diversification
The 3 months correlation between Exxon and SPDR is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and SPDR SP China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP China 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP China has no effect on the direction of Exxon i.e., Exxon and SPDR SP go up and down completely randomly.
Pair Corralation between Exxon and SPDR SP
Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 0.56 times more return on investment than SPDR SP. However, Exxon Mobil Corp is 1.78 times less risky than SPDR SP. It trades about 0.05 of its potential returns per unit of risk. SPDR SP China is currently generating about -0.09 per unit of risk. If you would invest 11,632 in Exxon Mobil Corp on August 30, 2024 and sell it today you would earn a total of 134.00 from holding Exxon Mobil Corp or generate 1.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Exxon Mobil Corp vs. SPDR SP China
Performance |
| Timeline |
| Exxon Mobil Corp |
| SPDR SP China |
Exxon and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Exxon and SPDR SP
The main advantage of trading using opposite Exxon and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon position performs unexpectedly, SPDR SP 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 SPDR SP will offset losses from the drop in SPDR SP's long position.| Exxon vs. BP PLC ADR | Exxon vs. Shell PLC ADR | Exxon vs. Petroleo Brasileiro Petrobras | Exxon vs. Suncor Energy |
| SPDR SP vs. Invesco Golden Dragon | SPDR SP vs. iShares MSCI Hong | SPDR SP vs. iShares MSCI China | SPDR SP vs. iShares China Large Cap |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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