Correlation Between Marathon Petroleum and PBF Energy

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

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

Diversification Opportunities for Marathon Petroleum and PBF Energy

0.77

Correlation Coefficient

Marathon Petroleum  PBF Energy

Poor diversification

The 3 months correlation between Marathon and PBF is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Marathon Petroleum Corp and PBF Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PBF Energy and Marathon Petroleum 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 Marathon Petroleum Corp are associated (or correlated) with PBF Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PBF Energy has no effect on the direction of Marathon Petroleum i.e., Marathon Petroleum and PBF Energy go up and down completely randomly.

Pair Corralation between Marathon Petroleum and PBF Energy

Considering the 90-day investment horizon Marathon Petroleum Corp is expected to under-perform the PBF Energy. But the stock apears to be less risky and, when comparing its historical volatility, Marathon Petroleum Corp is 1.34 times less risky than PBF Energy. The stock trades about -0.08 of its potential returns per unit of risk. The PBF Energy is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  3,308  in PBF Energy on September 2, 2024 and sell it today you would lose (159.00) from holding PBF Energy or give up 4.81% of portfolio value over 90 days.

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

Marathon Petroleum Corp  vs.  PBF Energy

Marathon Petroleum Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Marathon Petroleum Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

PBF Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PBF Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental drivers, PBF Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Marathon Petroleum and PBF Energy

The main advantage of trading using opposite Marathon Petroleum and PBF Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Marathon Petroleum position performs unexpectedly, PBF 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 PBF Energy will offset losses from the drop in PBF Energy's long position.

The idea behind Marathon Petroleum Corp and PBF 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.