Correlation Between Exxon and Enterprise Products

Can any of the company-specific risk be diversified away by investing in both Exxon and Enterprise Products 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 Enterprise Products 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 Enterprise Products Partners, you can compare the effects of market volatilities on Exxon and Enterprise Products 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 Enterprise Products. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and Enterprise Products.

Diversification Opportunities for Exxon and Enterprise Products

0.92

Correlation Coefficient

Exxon  Enterprise Products

Almost no diversification

The 3 months correlation between Exxon and Enterprise is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Enterprise Products Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enterprise Products 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 Enterprise Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enterprise Products has no effect on the direction of Exxon i.e., Exxon and Enterprise Products go up and down completely randomly.

Pair Corralation between Exxon and Enterprise Products

Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 1.42 times more return on investment than Enterprise Products. However, Exxon is 1.42 times more volatile than Enterprise Products Partners. It trades about 0.29 of its potential returns per unit of risk. Enterprise Products Partners is currently generating about 0.19 per unit of risk. If you would invest  10,205  in Exxon Mobil Corp on January 26, 2024 and sell it today you would earn a total of  1,900  from holding Exxon Mobil Corp or generate 18.62% return on investment over 90 days.

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

Exxon Mobil Corp  vs.  Enterprise Products Partners

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.

Enterprise Products

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Enterprise Products Partners are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Enterprise Products may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Exxon and Enterprise Products

The main advantage of trading using opposite Exxon and Enterprise Products positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon position performs unexpectedly, Enterprise Products 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 Enterprise Products will offset losses from the drop in Enterprise Products' long position.

The idea behind Exxon Mobil Corp and Enterprise Products Partners 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.