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

0.67

Correlation Coefficient

GM  Valero Energy

Poor diversification

The 3 months correlation between GM and Valero is 0.67. 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 under-perform the Valero Energy. In addition to that, GM is 1.15 times more volatile than Valero Energy. It trades about -0.11 of its total potential returns per unit of risk. Valero Energy is currently generating about -0.03 per unit of volatility. If you would invest  277,834  in Valero Energy on September 17, 2024 and sell it today you would lose (4,165) from holding Valero Energy or give up 1.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	90.0%
Values	Daily Returns

General Motors  vs.  Valero Energy

General Motors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Valero Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Valero Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Valero Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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.

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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.