Correlation Between Exxon and Dave
Can any of the company-specific risk be diversified away by investing in both Exxon and Dave 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 Exxon and Dave into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Exxon Mobil Corp and Dave Inc, you can compare the effects of market volatilities on Exxon and Dave 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 Exxon with a short position of Dave. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and Dave.
Diversification Opportunities for Exxon and Dave
Very poor diversification
The 3 months correlation between Exxon and Dave is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Dave Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dave Inc and Exxon 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 Exxon Mobil Corp are associated (or correlated) with Dave. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dave Inc has no effect on the direction of Exxon i.e., Exxon and Dave go up and down completely randomly.
Pair Corralation between Exxon and Dave
Considering the 90-day investment horizon Exxon is expected to generate 1.2 times less return on investment than Dave. But when comparing it to its historical volatility, Exxon Mobil Corp is 6.24 times less risky than Dave. It trades about 0.38 of its potential returns per unit of risk. Dave Inc is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 4,075 in Dave Inc on January 26, 2024 and sell it today you would earn a total of 216.00 from holding Dave Inc or generate 5.3% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Exxon Mobil Corp vs. Dave Inc
Performance |
Timeline |
Exxon Mobil Corp |
Dave Inc |
Exxon and Dave Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Exxon and Dave
The main advantage of trading using opposite Exxon and Dave positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon position performs unexpectedly, Dave 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 Dave will offset losses from the drop in Dave's long position.Exxon vs. Shell PLC ADR | Exxon vs. BP PLC ADR | Exxon vs. Suncor Energy | Exxon vs. Petroleo Brasileiro Petrobras |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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