Correlation Between Exxon and Twitter
Can any of the company-specific risk be diversified away by investing in both Exxon and Twitter 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 Twitter 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 Twitter, you can compare the effects of market volatilities on Exxon and Twitter 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 Twitter. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and Twitter.
Diversification Opportunities for Exxon and Twitter
Very poor diversification
The 3 months correlation between Exxon and Twitter is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Twitter in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Twitter 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 Twitter. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Twitter has no effect on the direction of Exxon i.e., Exxon and Twitter go up and down completely randomly.
Pair Corralation between Exxon and Twitter
Considering the 90-day investment horizon Exxon is expected to generate 10.83 times less return on investment than Twitter. But when comparing it to its historical volatility, Exxon Mobil Corp is 3.03 times less risky than Twitter. It trades about 0.07 of its potential returns per unit of risk. Twitter is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 4,152 in Twitter on December 20, 2023 and sell it today you would earn a total of 1,218 from holding Twitter or generate 29.34% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 6.74% |
Values | Daily Returns |
Exxon Mobil Corp vs. Twitter
Performance |
Timeline |
Exxon Mobil Corp |
Risk-Adjusted Performance
0 of 100
Low | High |
Very Weak
Exxon and Twitter Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Exxon and Twitter
The main advantage of trading using opposite Exxon and Twitter positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon position performs unexpectedly, Twitter 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 Twitter will offset losses from the drop in Twitter's long position.The idea behind Exxon Mobil Corp and Twitter 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.Twitter vs. Celsius Holdings | Twitter vs. National Beverage Corp | Twitter vs. Diageo PLC ADR | Twitter vs. Primo Water Corp |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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