Correlation Between NOV and Valero Energy

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

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

Diversification Opportunities for NOV and Valero Energy

-0.17

Correlation Coefficient

NOV  Valero Energy

Good diversification

The 3 months correlation between NOV and Valero is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding NOV Inc and Valero Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valero Energy and NOV 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 NOV Inc 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 NOV i.e., NOV and Valero Energy go up and down completely randomly.

Pair Corralation between NOV and Valero Energy

Assuming the 90 days trading horizon NOV is expected to generate 10.11 times less return on investment than Valero Energy. But when comparing it to its historical volatility, NOV Inc is 39.39 times less risky than Valero Energy. It trades about 0.13 of its potential returns per unit of risk. Valero Energy is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  216,291  in Valero Energy on September 24, 2024 and sell it today you would earn a total of  25,726  from holding Valero Energy or generate 11.89% return on investment over 90 days.

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

NOV Inc  vs.  Valero Energy

NOV Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NOV Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, NOV is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the 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 fairly strong basic indicators, Valero Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NOV and Valero Energy

The main advantage of trading using opposite NOV and Valero Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NOV 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 NOV Inc 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .