Correlation Between Exxon and Neste Oil

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

Diversification Opportunities for Exxon and Neste Oil

0.21

Correlation Coefficient

Exxon  Neste Oil

Modest diversification

The 3 months correlation between Exxon and Neste is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Neste Oil Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neste Oil Oyj 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 Neste Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neste Oil Oyj has no effect on the direction of Exxon i.e., Exxon and Neste Oil go up and down completely randomly.

Pair Corralation between Exxon and Neste Oil

Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 0.34 times more return on investment than Neste Oil. However, Exxon Mobil Corp is 2.97 times less risky than Neste Oil. It trades about -0.11 of its potential returns per unit of risk. Neste Oil Oyj is currently generating about -0.26 per unit of risk. If you would invest  11,940  in Exxon Mobil Corp on March 13, 2024 and sell it today you would lose (632.00) from holding Exxon Mobil Corp or give up 5.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.56%
Values	Daily Returns

Exxon Mobil Corp  vs.  Neste Oil Oyj

Exxon Mobil Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Exxon Mobil Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Exxon is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Neste Oil Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Neste Oil Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in July 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Exxon and Neste Oil

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

The idea behind Exxon Mobil Corp and Neste Oil Oyj 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 Global Correlations module to find global opportunities by holding instruments from different markets.