Correlation Between GM and Valero Energy
Can any of the company-specific risk be diversified away by investing in both GM and Valero Energy 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 GM and Valero Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Valero Energy, you can compare the effects of market volatilities on GM and Valero Energy 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 GM with a short position of Valero Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Valero Energy.
Diversification Opportunities for GM and Valero Energy
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between GM and Valero is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Valero Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valero Energy and GM 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 General Motors are associated (or correlated) with Valero Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valero Energy has no effect on the direction of GM i.e., GM and Valero Energy go up and down completely randomly.
Pair Corralation between GM and Valero Energy
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.86 times more return on investment than Valero Energy. However, General Motors is 1.16 times less risky than Valero Energy. It trades about -0.04 of its potential returns per unit of risk. Valero Energy is currently generating about -0.44 per unit of risk. If you would invest 5,492 in General Motors on October 1, 2024 and sell it today you would lose (64.00) from holding General Motors or give up 1.17% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 90.0% |
| Values | Daily Returns |
General Motors vs. Valero Energy
Performance |
| Timeline |
| General Motors |
| Valero Energy |
GM and Valero Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Valero Energy
The main advantage of trading using opposite GM and Valero Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Valero Energy 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 Valero Energy will offset losses from the drop in Valero Energy's long position.The idea behind General Motors and Valero Energy 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.| Valero Energy vs. Reliance Industries Limited | Valero Energy vs. Marathon Petroleum Corp | Valero Energy vs. NESTE OYJ UNSPADR | Valero Energy vs. Polski Koncern Naftowy |
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 the Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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