Correlation Between Ford and Exxon

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Can any of the company-specific risk be diversified away by investing in both Ford 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 Ford and Exxon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Exxon Mobil Corp, you can compare the effects of market volatilities on Ford 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 Ford with a short position of Exxon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Exxon.

Diversification Opportunities for Ford and Exxon

0.23
  Correlation Coefficient

Modest diversification

The 3 months correlation between Ford and Exxon is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor 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 Ford 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 Ford Motor 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 Ford i.e., Ford and Exxon go up and down completely randomly.

Pair Corralation between Ford and Exxon

Taking into account the 90-day investment horizon Ford is expected to generate 1.74 times less return on investment than Exxon. In addition to that, Ford is 1.4 times more volatile than Exxon Mobil Corp. It trades about 0.05 of its total potential returns per unit of risk. Exxon Mobil Corp is currently generating about 0.11 per unit of volatility. If you would invest  3,987  in Exxon Mobil Corp on September 1, 2022 and sell it today you would earn a total of  7,147  from holding Exxon Mobil Corp or generate 179.26% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Ford Motor  vs.  Exxon Mobil Corp

 Performance (%) 
       Timeline  
Ford Motor 
Ford Performance
0 of 100
Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Ford is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Ford Price Channel

Exxon Mobil Corp 
Exxon Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Exxon revealed solid returns over the last few months and may actually be approaching a breakup point.

Exxon Price Channel

Ford and Exxon Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ford and Exxon

The main advantage of trading using opposite Ford and Exxon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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.
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The idea behind Ford Motor 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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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 Analyst Recommendations module to analyst recommendations and target price estimates broken down by several categories.

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