Correlation Between Exxon and Sound Energy
Can any of the company-specific risk be diversified away by investing in both Exxon and Sound Energy 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 Sound Energy 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 Sound Energy plc, you can compare the effects of market volatilities on Exxon and Sound Energy 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 Sound Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and Sound Energy.
Diversification Opportunities for Exxon and Sound Energy
-0.69 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Exxon and Sound is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Sound Energy plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sound Energy plc 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 Sound Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sound Energy plc has no effect on the direction of Exxon i.e., Exxon and Sound Energy go up and down completely randomly.
Pair Corralation between Exxon and Sound Energy
Considering the 90-day investment horizon Exxon is expected to generate 27.78 times less return on investment than Sound Energy. But when comparing it to its historical volatility, Exxon Mobil Corp is 16.71 times less risky than Sound Energy. It trades about 0.03 of its potential returns per unit of risk. Sound Energy plc is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 2.00 in Sound Energy plc on September 2, 2024 and sell it today you would lose (1.59) from holding Sound Energy plc or give up 79.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Exxon Mobil Corp vs. Sound Energy plc
Performance |
| Timeline |
| Exxon Mobil Corp |
| Sound Energy plc |
Exxon and Sound Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Exxon and Sound Energy
The main advantage of trading using opposite Exxon and Sound Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon position performs unexpectedly, Sound Energy 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 Sound Energy will offset losses from the drop in Sound Energy's long position.The idea behind Exxon Mobil Corp and Sound Energy plc 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.| Sound Energy vs. Permian Resources | Sound Energy vs. Devon Energy | Sound Energy vs. EOG Resources | Sound Energy vs. Coterra Energy |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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