Correlation Between Exxon and ALLTEL

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Can any of the company-specific risk be diversified away by investing in both Exxon and ALLTEL 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 ALLTEL 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 ALLTEL P 68, you can compare the effects of market volatilities on Exxon and ALLTEL 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 ALLTEL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and ALLTEL.

Diversification Opportunities for Exxon and ALLTEL

-0.31
  Correlation Coefficient

Very good diversification

The 3 months correlation between Exxon and ALLTEL is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and ALLTEL P 68 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALLTEL P 68 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 ALLTEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALLTEL P 68 has no effect on the direction of Exxon i.e., Exxon and ALLTEL go up and down completely randomly.

Pair Corralation between Exxon and ALLTEL

Considering the 90-day investment horizon Exxon Mobil Corp is expected to under-perform the ALLTEL. But the stock apears to be less risky and, when comparing its historical volatility, Exxon Mobil Corp is 1.18 times less risky than ALLTEL. The stock trades about -0.13 of its potential returns per unit of risk. The ALLTEL P 68 is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  10,542  in ALLTEL P 68 on November 7, 2024 and sell it today you would lose (57.00) from holding ALLTEL P 68 or give up 0.54% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy27.12%
ValuesDaily Returns

Exxon Mobil Corp  vs.  ALLTEL P 68

 Performance 
       Timeline  
Exxon Mobil Corp 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days Exxon Mobil Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.
ALLTEL P 68 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days ALLTEL P 68 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ALLTEL is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Exxon and ALLTEL Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Exxon and ALLTEL

The main advantage of trading using opposite Exxon and ALLTEL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon position performs unexpectedly, ALLTEL 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 ALLTEL will offset losses from the drop in ALLTEL's long position.
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The idea behind Exxon Mobil Corp and ALLTEL P 68 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.
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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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