Correlation Between APA and Exxon
Can any of the company-specific risk be diversified away by investing in both APA 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 APA and Exxon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between APA Corporation and Exxon Mobil Corp, you can compare the effects of market volatilities on APA 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 APA with a short position of Exxon. Check out your portfolio center. Please also check ongoing floating volatility patterns of APA and Exxon.
Diversification Opportunities for APA and Exxon
Very poor diversification
The 3 months correlation between APA and Exxon is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding APA Corp. 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 APA 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 APA Corporation 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 APA i.e., APA and Exxon go up and down completely randomly.
Pair Corralation between APA and Exxon
Considering the 90-day investment horizon APA is expected to generate 2.45 times less return on investment than Exxon. In addition to that, APA is 1.61 times more volatile than Exxon Mobil Corp. It trades about 0.02 of its total potential returns per unit of risk. Exxon Mobil Corp is currently generating about 0.07 per unit of volatility. If you would invest 7,980 in Exxon Mobil Corp on January 19, 2024 and sell it today you would earn a total of 3,872 from holding Exxon Mobil Corp or generate 48.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
APA Corp. vs. Exxon Mobil Corp
Performance |
| Timeline |
| APA Corporation |
| Exxon Mobil Corp |
APA and Exxon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with APA and Exxon
The main advantage of trading using opposite APA and Exxon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if APA 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 APA Corporation 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.| 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 Stocks Directory module to find actively traded stocks across global markets.
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