Correlation Between Exxon and Vanguard FTSE

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

Diversification Opportunities for Exxon and Vanguard FTSE

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between Exxon and Vanguard is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Vanguard FTSE All-World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE All-World 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 Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE All-World has no effect on the direction of Exxon i.e., Exxon and Vanguard FTSE go up and down completely randomly.

Pair Corralation between Exxon and Vanguard FTSE

Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 1.3 times more return on investment than Vanguard FTSE. However, Exxon is 1.3 times more volatile than Vanguard FTSE All World. It trades about 0.6 of its potential returns per unit of risk. Vanguard FTSE All World is currently generating about 0.22 per unit of risk. If you would invest  10,403  in Exxon Mobil Corp on December 29, 2023 and sell it today you would earn a total of  1,094  from holding Exxon Mobil Corp or generate 10.52% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Exxon Mobil Corp  vs.  Vanguard FTSE All-World

 Performance 
       Timeline  
Exxon Mobil Corp 

Risk-Adjusted Performance

17 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 17 (%) 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.
Vanguard FTSE All-World 

Risk-Adjusted Performance

3 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE All World are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Vanguard FTSE is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Exxon and Vanguard FTSE Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Exxon and Vanguard FTSE

The main advantage of trading using opposite Exxon and Vanguard FTSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon position performs unexpectedly, Vanguard FTSE 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 Vanguard FTSE will offset losses from the drop in Vanguard FTSE's long position.
The idea behind Exxon Mobil Corp and Vanguard FTSE All World 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.

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