Correlation Between Berkshire Hathaway and Exxon

Can any of the company-specific risk be diversified away by investing in both Berkshire Hathaway 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 Berkshire Hathaway and Exxon into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Berkshire Hathaway and Exxon Mobil Corp, you can compare the effects of market volatilities on Berkshire Hathaway 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 Berkshire Hathaway with a short position of Exxon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Berkshire Hathaway and Exxon.

Diversification Opportunities for Berkshire Hathaway and Exxon

0.68

Correlation Coefficient

Berkshire Hathaway  Exxon

Poor diversification

The 3 months correlation between Berkshire and Exxon is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Berkshire Hathaway 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 Berkshire Hathaway 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 Berkshire Hathaway 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 Berkshire Hathaway i.e., Berkshire Hathaway and Exxon go up and down completely randomly.

Pair Corralation between Berkshire Hathaway and Exxon

Assuming the 90 days horizon Berkshire Hathaway is expected to generate 0.64 times more return on investment than Exxon. However, Berkshire Hathaway is 1.56 times less risky than Exxon. It trades about 0.1 of its potential returns per unit of risk. Exxon Mobil Corp is currently generating about 0.03 per unit of risk. If you would invest  43,870,000  in Berkshire Hathaway on January 26, 2024 and sell it today you would earn a total of  17,472,000  from holding Berkshire Hathaway or generate 39.83% return on investment over 90 days.

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

Berkshire Hathaway  vs.  Exxon Mobil Corp

Berkshire Hathaway

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Berkshire Hathaway are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Berkshire Hathaway is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Exxon Mobil Corp

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Exxon displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Berkshire Hathaway and Exxon

The main advantage of trading using opposite Berkshire Hathaway and Exxon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Berkshire Hathaway 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 Berkshire Hathaway 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.

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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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.