Correlation Between Occidental Petroleum and Exxon

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

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

Diversification Opportunities for Occidental Petroleum and Exxon

0.99

Correlation Coefficient

Occidental Petroleum  Exxon

No risk reduction

The 3 months correlation between Occidental and Exxon is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Occidental Petroleum 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 Occidental Petroleum 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 Occidental Petroleum 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 Occidental Petroleum i.e., Occidental Petroleum and Exxon go up and down completely randomly.

Pair Corralation between Occidental Petroleum and Exxon

Considering the 90-day investment horizon Occidental Petroleum is expected to generate 1.4 times more return on investment than Exxon. However, Occidental Petroleum is 1.4 times more volatile than Exxon Mobil Corp. It trades about 0.27 of its potential returns per unit of risk. Exxon Mobil Corp is currently generating about 0.38 per unit of risk. If you would invest  6,332  in Occidental Petroleum on January 26, 2024 and sell it today you would earn a total of  401.00  from holding Occidental Petroleum or generate 6.33% return on investment over 90 days.

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

Occidental Petroleum  vs.  Exxon Mobil Corp

Occidental Petroleum

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Occidental Petroleum are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Occidental Petroleum showed solid returns over the last few months and may actually be approaching a breakup point.

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 Occidental Petroleum and Exxon

The main advantage of trading using opposite Occidental Petroleum and Exxon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Occidental Petroleum 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 Occidental Petroleum 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.