Correlation Between China BlueChemical and Valero Energy

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

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

Diversification Opportunities for China BlueChemical and Valero Energy

0.52

Correlation Coefficient

China BlueChemical  Valero Energy

Very weak diversification

The 3 months correlation between China and Valero is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding China BlueChemical and Valero Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valero Energy Corp and China BlueChemical 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 China BlueChemical 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 Corp has no effect on the direction of China BlueChemical i.e., China BlueChemical and Valero Energy go up and down completely randomly.

Pair Corralation between China BlueChemical and Valero Energy

Assuming the 90 days horizon China BlueChemical is expected to generate 1.46 times less return on investment than Valero Energy. In addition to that, China BlueChemical is 1.6 times more volatile than Valero Energy Corp. It trades about 0.04 of its total potential returns per unit of risk. Valero Energy Corp is currently generating about 0.09 per unit of volatility. If you would invest  11,210  in Valero Energy Corp on December 21, 2024 and sell it today you would earn a total of  1,112  from holding Valero Energy Corp or generate 9.92% return on investment over 90 days.

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

China BlueChemical  vs.  Valero Energy Corp

China BlueChemical

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China BlueChemical are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, China BlueChemical may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Valero Energy Corp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Valero Energy Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Valero Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with China BlueChemical and Valero Energy

The main advantage of trading using opposite China BlueChemical and Valero Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China BlueChemical 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 China BlueChemical and Valero Energy Corp 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.