Trading a Reversal of Correlation

I was chatting with Bob Byrne yesterday – and, yes, we do talk often enough that some folks might say we act like an old married couple, but when it comes to the trading in energy stocks there is no one I trust more. At any rate, he mentioned that ExxonMobil (XOM) continued to track strong, even with West Texas Intermediate Crude (WTIC) -- and oil in general -- trading weak. His comment got me thinking about whether this happened in the past? If so, was there a trade to be had here?

We know there are external factors on both ExxonMobil and WTIC. Also, I wanted to take into account the large influence the S&P 500 may have since ExxonMobil is one of its largest components. Of course, the correlation between ExxonMobil and WTIC and S&P 500, for that matter, can vary greatly day by day. That really doesn't concern me. Taking a look at a daily chart showing ExxonMobil's movements and the correlations with WTIC and S&P 500 will drive you crazy. Even moving to a weekly chart will probably yield results that are inconclusive, although after seeing the results on the monthly chart, I may have to put the time into it....662 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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