Correlation Between Exxon and Better Choice

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

Diversification Opportunities for Exxon and Better Choice

0.74
  Correlation Coefficient

Poor diversification

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

Pair Corralation between Exxon and Better Choice

Considering the 90-day investment horizon Exxon Mobil Corp is expected to under-perform the Better Choice. But the stock apears to be less risky and, when comparing its historical volatility, Exxon Mobil Corp is 1.98 times less risky than Better Choice. The stock trades about -0.1 of its potential returns per unit of risk. The Better Choice is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  273.00  in Better Choice on May 11, 2022 and sell it today you would lose (33.00)  from holding Better Choice or give up 12.09% of portfolio value over 90 days.
Time Period1 Month [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Exxon Mobil Corp  vs.  Better Choice

 Performance (%) 
       Timeline  
Exxon Mobil Corp 
Exxon Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Exxon revealed solid returns over the last few months and may actually be approaching a breakup point.

Exxon Price Channel

Better Choice 
Better Performance
15 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Better Choice are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Better Choice reported solid returns over the last few months and may actually be approaching a breakup point.

Better Price Channel

Exxon and Better Choice Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Exxon and Better Choice

The main advantage of trading using opposite Exxon and Better Choice positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon position performs unexpectedly, Better Choice 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 Better Choice will offset losses from the drop in Better Choice's long position.
The idea behind Exxon Mobil Corp and Better Choice 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.

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