Correlation Between Exxon and Innovator
Can any of the company-specific risk be diversified away by investing in both Exxon and Innovator 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 Innovator 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 Innovator SP 500, you can compare the effects of market volatilities on Exxon and Innovator 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 Innovator. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and Innovator.
Diversification Opportunities for Exxon and Innovator
Poor diversification
The 3 months correlation between Exxon and Innovator is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Innovator SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator SP 500 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 Innovator. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator SP 500 has no effect on the direction of Exxon i.e., Exxon and Innovator go up and down completely randomly.
Pair Corralation between Exxon and Innovator
Considering the 90-day investment horizon Exxon is expected to generate 1.22 times less return on investment than Innovator. In addition to that, Exxon is 4.65 times more volatile than Innovator SP 500. It trades about 0.08 of its total potential returns per unit of risk. Innovator SP 500 is currently generating about 0.44 per unit of volatility. If you would invest 3,489 in Innovator SP 500 on September 1, 2024 and sell it today you would earn a total of 89.00 from holding Innovator SP 500 or generate 2.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Exxon Mobil Corp vs. Innovator SP 500
Performance |
| Timeline |
| Exxon Mobil Corp |
| Innovator SP 500 |
Exxon and Innovator Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Exxon and Innovator
The main advantage of trading using opposite Exxon and Innovator positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon position performs unexpectedly, Innovator 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 Innovator will offset losses from the drop in Innovator's long position.The idea behind Exxon Mobil Corp and Innovator SP 500 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.| Innovator vs. Innovator SP 500 | Innovator vs. Innovator SP 500 | Innovator vs. Innovator SP 500 | Innovator vs. Innovator SP 500 |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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