Correlation Between IMPERIAL TOBACCO and Valero Energy

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

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

Diversification Opportunities for IMPERIAL TOBACCO and Valero Energy

-0.08

Correlation Coefficient

IMPERIAL TOBACCO  Valero Energy

Good diversification

The 3 months correlation between IMPERIAL and Valero is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding IMPERIAL TOBACCO 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 IMPERIAL TOBACCO 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 IMPERIAL TOBACCO 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 IMPERIAL TOBACCO i.e., IMPERIAL TOBACCO and Valero Energy go up and down completely randomly.

Pair Corralation between IMPERIAL TOBACCO and Valero Energy

Assuming the 90 days trading horizon IMPERIAL TOBACCO is expected to generate 1.68 times less return on investment than Valero Energy. But when comparing it to its historical volatility, IMPERIAL TOBACCO is 2.33 times less risky than Valero Energy. It trades about 0.13 of its potential returns per unit of risk. Valero Energy Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  11,210  in Valero Energy Corp on December 23, 2024 and sell it today you would earn a total of  1,196  from holding Valero Energy Corp or generate 10.67% return on investment over 90 days.

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

IMPERIAL TOBACCO   vs.  Valero Energy Corp

IMPERIAL TOBACCO

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in IMPERIAL TOBACCO are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental drivers, IMPERIAL TOBACCO may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Valero Energy Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Valero Energy Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Valero Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IMPERIAL TOBACCO and Valero Energy

The main advantage of trading using opposite IMPERIAL TOBACCO and Valero Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IMPERIAL TOBACCO 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 IMPERIAL TOBACCO 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.