Can any of the company-specific risk be diversified away by investing in both Uber Technologies 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 Uber Technologies and Exxon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Uber Technologies and Exxon Mobil Corp, you can compare the effects of market volatilities on Uber Technologies 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 Uber Technologies with a short position of Exxon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Uber Technologies and Exxon.
Diversification Opportunities for Uber Technologies and Exxon
The 3 months correlation between Uber and Exxon is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Uber Technologies 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 Uber Technologies 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 Uber Technologies 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 Uber Technologies i.e., Uber Technologies and Exxon go up and down completely randomly.
Pair Corralation between Uber Technologies and Exxon
Given the investment horizon of 90 days Uber Technologies is expected to generate 1.23 times more return on investment than Exxon. However, Uber Technologies is 1.23 times more volatile than Exxon Mobil Corp. It trades about 0.82 of its potential returns per unit of risk. Exxon Mobil Corp is currently generating about -0.22 per unit of risk. If you would invest 4,648 in Uber Technologies on September 3, 2023 and sell it today you would earn a total of 1,087 from holding Uber Technologies or generate 23.39% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Uber Technologies are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain technical and fundamental indicators, Uber Technologies reported solid returns over the last few months and may actually be approaching a breakup point.
Over the last 90 days Exxon Mobil Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm insiders.
The main advantage of trading using opposite Uber Technologies and Exxon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Uber Technologies 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 Uber Technologies 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
Portfolio dashboard that provides centralized access to all your investments
Macroaxis helps investors of all levels and skills to maximize the upside of all their holdings and minimize the risk
associated with market volatility, economic swings, and company-specific events. View terms and conditions