diversifiable risk of combining General Electric and Exxon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Electric and Exxon Mobil Corp, you can compare the effects of market volatilities on General Electric 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 General Electric with a short position of Exxon. Check out your portfolio center. Please also check ongoing floating volatility patterns of General Electric and Exxon.
Diversification Opportunities for General Electric and Exxon
Pair Corralation between General Electric and Exxon
Allowing for the 90-day total investment horizon General Electric is expected to generate 0.76 times more return on investment than Exxon. However, General Electric is 1.32 times less risky than Exxon. It trades about 0.93 of its potential returns per unit of risk. Exxon Mobil Corp is currently generating about 0.15 per unit of risk. If you would invest 13,541 in General Electric on December 3, 2023 and sell it today you would earn a total of 2,324 from holding General Electric or generate 17.16% return on investment over 90 days.
General Electric vs. Exxon Mobil Corp
General Electric and Exxon Volatility Contrast
Pair Trading with General Electric and ExxonThe main advantage of trading using opposite General Electric and Exxon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Electric 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 General Electric 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.
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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