Correlation Between Small Cap and Exxon

Can any of the company-specific risk be diversified away by investing in both Small Cap and Exxon 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 Small Cap and Exxon into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Small Cap Core and Exxon Mobil Corp, you can compare the effects of market volatilities on Small Cap and Exxon 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 Small Cap with a short position of Exxon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Exxon.

Diversification Opportunities for Small Cap and Exxon

0.52

Correlation Coefficient

Small Cap  Exxon

Very weak diversification

The 3 months correlation between Small and Exxon is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Core and Exxon Mobil Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exxon Mobil Corp and Small Cap 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 Small Cap Core are associated (or correlated) with Exxon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exxon Mobil Corp has no effect on the direction of Small Cap i.e., Small Cap and Exxon go up and down completely randomly.

Pair Corralation between Small Cap and Exxon

Assuming the 90 days horizon Small Cap Core is expected to generate 1.0 times more return on investment than Exxon. However, Small Cap Core is 1.0 times less risky than Exxon. It trades about 0.06 of its potential returns per unit of risk. Exxon Mobil Corp is currently generating about 0.05 per unit of risk. If you would invest  1,377  in Small Cap Core on August 24, 2024 and sell it today you would earn a total of  59.00  from holding Small Cap Core or generate 4.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Small Cap Core  vs.  Exxon Mobil Corp

Small Cap Core

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Core are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Small Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Exxon Mobil Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Exxon is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Small Cap and Exxon

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

The idea behind Small Cap Core and Exxon Mobil Corp 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.