Correlation Between Exxon and Best Buy
Can any of the company-specific risk be diversified away by investing in both Exxon and Best Buy 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 Best Buy 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 Best Buy Co, you can compare the effects of market volatilities on Exxon and Best Buy 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 Best Buy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and Best Buy.
Diversification Opportunities for Exxon and Best Buy
Poor diversification
The 3 months correlation between Exxon and Best is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Best Buy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Best Buy 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 Best Buy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Best Buy has no effect on the direction of Exxon i.e., Exxon and Best Buy go up and down completely randomly.
Pair Corralation between Exxon and Best Buy
Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 0.54 times more return on investment than Best Buy. However, Exxon Mobil Corp is 1.85 times less risky than Best Buy. It trades about 0.31 of its potential returns per unit of risk. Best Buy Co is currently generating about -0.24 per unit of risk. If you would invest 11,465 in Exxon Mobil Corp on January 25, 2024 and sell it today you would earn a total of 640.00 from holding Exxon Mobil Corp or generate 5.58% 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. Best Buy Co
Performance |
| Timeline |
| Exxon Mobil Corp |
| Best Buy |
Exxon and Best Buy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Exxon and Best Buy
The main advantage of trading using opposite Exxon and Best Buy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon position performs unexpectedly, Best Buy 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 Best Buy will offset losses from the drop in Best Buy'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 Global Correlations module to find global opportunities by holding instruments from different markets.
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