Correlation Between BP Prudhoe and Valero Energy

Can any of the company-specific risk be diversified away by investing in both BP Prudhoe 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 BP Prudhoe and Valero Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BP Prudhoe Bay and Valero Energy, you can compare the effects of market volatilities on BP Prudhoe 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 BP Prudhoe with a short position of Valero Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP Prudhoe and Valero Energy.

Diversification Opportunities for BP Prudhoe and Valero Energy

0.76

Correlation Coefficient

BP Prudhoe  Valero Energy

Poor diversification

The 3 months correlation between BPT and Valero is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding BP Prudhoe Bay and Valero Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valero Energy and BP Prudhoe 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 BP Prudhoe Bay 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 BP Prudhoe i.e., BP Prudhoe and Valero Energy go up and down completely randomly.

Pair Corralation between BP Prudhoe and Valero Energy

Considering the 90-day investment horizon BP Prudhoe Bay is expected to under-perform the Valero Energy. In addition to that, BP Prudhoe is 2.65 times more volatile than Valero Energy. It trades about -0.09 of its total potential returns per unit of risk. Valero Energy is currently generating about 0.01 per unit of volatility. If you would invest  11,780  in Valero Energy on October 5, 2024 and sell it today you would earn a total of  535.00  from holding Valero Energy or generate 4.54% return on investment over 90 days.

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

BP Prudhoe Bay  vs.  Valero Energy

BP Prudhoe Bay

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BP Prudhoe Bay has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Valero Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valero Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's essential indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with BP Prudhoe and Valero Energy

The main advantage of trading using opposite BP Prudhoe and Valero Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BP Prudhoe 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 BP Prudhoe Bay 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.

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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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.