Correlation Between Exxon and Ford
Can any of the company-specific risk be diversified away by investing in both Exxon and Ford 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 Ford 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 Ford Motor, you can compare the effects of market volatilities on Exxon and Ford 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 Ford. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and Ford.
Diversification Opportunities for Exxon and Ford
Poor diversification
The 3 months correlation between Exxon and Ford is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Ford Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ford Motor 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 Ford. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ford Motor has no effect on the direction of Exxon i.e., Exxon and Ford go up and down completely randomly.
Pair Corralation between Exxon and Ford
Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 0.32 times more return on investment than Ford. However, Exxon Mobil Corp is 3.09 times less risky than Ford. It trades about 0.38 of its potential returns per unit of risk. Ford Motor is currently generating about 0.09 per unit of risk. If you would invest 11,379 in Exxon Mobil Corp on January 26, 2024 and sell it today you would earn a total of 726.00 from holding Exxon Mobil Corp or generate 6.38% 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. Ford Motor
Performance |
| Timeline |
| Exxon Mobil Corp |
| Ford Motor |
Exxon and Ford Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Exxon and Ford
The main advantage of trading using opposite Exxon and Ford positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon position performs unexpectedly, Ford 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 Ford will offset losses from the drop in Ford's long position.| Exxon vs. Shell PLC ADR | Exxon vs. BP PLC ADR | Exxon vs. Suncor Energy | Exxon vs. Petroleo Brasileiro Petrobras |
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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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