Correlation Between Exxon and Meta Platforms

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

Diversification Opportunities for Exxon and Meta Platforms

0.66
  Correlation Coefficient

Poor diversification

The 3 months correlation between Exxon and Meta is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Meta Platforms in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meta Platforms 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 Meta Platforms. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meta Platforms has no effect on the direction of Exxon i.e., Exxon and Meta Platforms go up and down completely randomly.

Pair Corralation between Exxon and Meta Platforms

Considering the 90-day investment horizon Exxon is expected to generate 5.3 times less return on investment than Meta Platforms. But when comparing it to its historical volatility, Exxon Mobil Corp is 1.65 times less risky than Meta Platforms. It trades about 0.03 of its potential returns per unit of risk. Meta Platforms is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  28,098  in Meta Platforms on September 7, 2024 and sell it today you would earn a total of  33,124  from holding Meta Platforms or generate 117.89% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Exxon Mobil Corp  vs.  Meta Platforms

 Performance 
       Timeline  
Exxon Mobil Corp 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Exxon is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.
Meta Platforms 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Meta Platforms are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Meta Platforms sustained solid returns over the last few months and may actually be approaching a breakup point.

Exxon and Meta Platforms Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Exxon and Meta Platforms

The main advantage of trading using opposite Exxon and Meta Platforms positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon position performs unexpectedly, Meta Platforms 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 Meta Platforms will offset losses from the drop in Meta Platforms' long position.
The idea behind Exxon Mobil Corp and Meta Platforms 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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