Correlation Between Exxon and Ciena Corp

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

Diversification Opportunities for Exxon and Ciena Corp

-0.88

Correlation Coefficient

Exxon  Ciena Corp

Pay attention - limited upside

The 3 months correlation between Exxon and Ciena is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Ciena Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ciena Corp 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 Ciena Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ciena Corp has no effect on the direction of Exxon i.e., Exxon and Ciena Corp go up and down completely randomly.

Pair Corralation between Exxon and Ciena Corp

Considering the 90-day investment horizon Exxon Mobil Corp is expected to under-perform the Ciena Corp. But the stock apears to be less risky and, when comparing its historical volatility, Exxon Mobil Corp is 1.53 times less risky than Ciena Corp. The stock trades about -0.12 of its potential returns per unit of risk. The Ciena Corp is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  4,862  in Ciena Corp on February 3, 2024 and sell it today you would lose (85.00) from holding Ciena Corp or give up 1.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Exxon Mobil Corp  vs.  Ciena Corp

Exxon Mobil Corp

Risk-Adjusted Performance

17 of 100

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 uncertain basic indicators, Exxon displayed solid returns over the last few months and may actually be approaching a breakup point.

Ciena Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ciena Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Exxon and Ciena Corp

The main advantage of trading using opposite Exxon and Ciena Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon position performs unexpectedly, Ciena Corp 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 Ciena Corp will offset losses from the drop in Ciena Corp's long position.

The idea behind Exxon Mobil Corp and Ciena Corp 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.