Correlation Between SPDR SP and Exxon
Can any of the company-specific risk be diversified away by investing in both SPDR SP 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 SPDR SP and Exxon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP 500 and Exxon Mobil Corp, you can compare the effects of market volatilities on SPDR SP 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 SPDR SP with a short position of Exxon. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Exxon.
Diversification Opportunities for SPDR SP and Exxon
Poor diversification
The 3 months correlation between SPDR and Exxon is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 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 SPDR SP 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 SPDR SP 500 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 SPDR SP i.e., SPDR SP and Exxon go up and down completely randomly.
Pair Corralation between SPDR SP and Exxon
Considering the 90-day investment horizon SPDR SP 500 is expected to under-perform the Exxon. But the etf apears to be less risky and, when comparing its historical volatility, SPDR SP 500 is 1.29 times less risky than Exxon. The etf trades about -0.28 of its potential returns per unit of risk. The Exxon Mobil Corp is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 11,299 in Exxon Mobil Corp on January 20, 2024 and sell it today you would earn a total of 553.00 from holding Exxon Mobil Corp or generate 4.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 91.3% |
| Values | Daily Returns |
SPDR SP 500 vs. Exxon Mobil Corp
Performance |
| Timeline |
| SPDR SP 500 |
| Exxon Mobil Corp |
SPDR SP and Exxon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR SP and Exxon
The main advantage of trading using opposite SPDR SP and Exxon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP 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.| SPDR SP vs. Dimensional Targeted Value | SPDR SP vs. Dimensional World ex | SPDR SP vs. Dimensional Small Cap |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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