Correlation Between Exxon and PHILIP

Can any of the company-specific risk be diversified away by investing in both Exxon and PHILIP 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 PHILIP 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 PHILIP MORRIS INTL, you can compare the effects of market volatilities on Exxon and PHILIP 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 PHILIP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and PHILIP.

Diversification Opportunities for Exxon and PHILIP

-0.65

Correlation Coefficient

Exxon  PHILIP

Excellent diversification

The 3 months correlation between Exxon and PHILIP is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and PHILIP MORRIS INTL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PHILIP MORRIS INTL 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 PHILIP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PHILIP MORRIS INTL has no effect on the direction of Exxon i.e., Exxon and PHILIP go up and down completely randomly.

Pair Corralation between Exxon and PHILIP

Considering the 90-day investment horizon Exxon Mobil Corp is expected to under-perform the PHILIP. In addition to that, Exxon is 1.04 times more volatile than PHILIP MORRIS INTL. It trades about -0.15 of its total potential returns per unit of risk. PHILIP MORRIS INTL is currently generating about 0.29 per unit of volatility. If you would invest  7,650  in PHILIP MORRIS INTL on February 23, 2024 and sell it today you would earn a total of  560.00  from holding PHILIP MORRIS INTL or generate 7.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Exxon Mobil Corp  vs.  PHILIP MORRIS INTL

Exxon Mobil Corp

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Exxon may actually be approaching a critical reversion point that can send shares even higher in June 2024.

PHILIP MORRIS INTL

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PHILIP MORRIS INTL are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, PHILIP is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Exxon and PHILIP

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

The idea behind Exxon Mobil Corp and PHILIP MORRIS INTL 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.