Correlation Between Exxon and Western Midstream
Can any of the company-specific risk be diversified away by investing in both Exxon and Western Midstream 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 Western Midstream 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 Western Midstream Partners, you can compare the effects of market volatilities on Exxon and Western Midstream 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 Western Midstream. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and Western Midstream.
Diversification Opportunities for Exxon and Western Midstream
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Exxon and Western is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Western Midstream Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Midstream 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 Western Midstream. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Midstream has no effect on the direction of Exxon i.e., Exxon and Western Midstream go up and down completely randomly.
Pair Corralation between Exxon and Western Midstream
Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 0.89 times more return on investment than Western Midstream. However, Exxon Mobil Corp is 1.13 times less risky than Western Midstream. It trades about 0.39 of its potential returns per unit of risk. Western Midstream Partners is currently generating about -0.02 per unit of risk. If you would invest 11,230 in Exxon Mobil Corp on January 17, 2024 and sell it today you would earn a total of 738.00 from holding Exxon Mobil Corp or generate 6.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Exxon Mobil Corp vs. Western Midstream Partners
Performance |
| Timeline |
| Exxon Mobil Corp |
| Western Midstream |
Exxon and Western Midstream Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Exxon and Western Midstream
The main advantage of trading using opposite Exxon and Western Midstream positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon position performs unexpectedly, Western Midstream 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 Western Midstream will offset losses from the drop in Western Midstream's long position.The idea behind Exxon Mobil Corp and Western Midstream Partners 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.| Western Midstream vs. DT Midstream | Western Midstream vs. MPLX LP | Western Midstream vs. NuStar Energy LP | Western Midstream vs. Plains All American |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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