Correlation Between Exxon and VANGUARD 500

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Can any of the company-specific risk be diversified away by investing in both Exxon and VANGUARD 500 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 500 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 500 INDEX, you can compare the effects of market volatilities on Exxon and VANGUARD 500 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 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and VANGUARD 500.

Diversification Opportunities for Exxon and VANGUARD 500

0.49
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Exxon and VANGUARD is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and VANGUARD 500 INDEX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VANGUARD 500 INDEX 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 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VANGUARD 500 INDEX has no effect on the direction of Exxon i.e., Exxon and VANGUARD 500 go up and down completely randomly.

Pair Corralation between Exxon and VANGUARD 500

Considering the 90-day investment horizon Exxon Mobil Corp is expected to under-perform the VANGUARD 500. In addition to that, Exxon is 1.08 times more volatile than VANGUARD 500 INDEX. It trades about -0.2 of its total potential returns per unit of risk. VANGUARD 500 INDEX is currently generating about 0.11 per unit of volatility. If you would invest  35,171  in VANGUARD 500 INDEX on September 8, 2022 and sell it today you would earn a total of  1,311  from holding VANGUARD 500 INDEX or generate 3.73% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Exxon Mobil Corp  vs.  VANGUARD 500 INDEX

 Performance (%) 
       Timeline  
Exxon Mobil Corp 
Exxon Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Exxon may actually be approaching a critical reversion point that can send shares even higher in January 2023.

Exxon Price Channel

VANGUARD 500 INDEX 
VANGUARD Performance
0 of 100
Over the last 90 days VANGUARD 500 INDEX has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, VANGUARD 500 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

VANGUARD Price Channel

Exxon and VANGUARD 500 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Exxon and VANGUARD 500

The main advantage of trading using opposite Exxon and VANGUARD 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon position performs unexpectedly, VANGUARD 500 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 500 will offset losses from the drop in VANGUARD 500's long position.
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The idea behind Exxon Mobil Corp and VANGUARD 500 INDEX 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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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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.

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