Correlation Between Phillips and Marathon Petroleum

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

By analyzing existing cross correlation between Phillips 66 and Marathon Petroleum Corp, you can compare the effects of market volatilities on Phillips and Marathon Petroleum 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 Phillips with a short position of Marathon Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Phillips and Marathon Petroleum.

Diversification Opportunities for Phillips and Marathon Petroleum

0.73

Correlation Coefficient

Phillips  Marathon Petroleum

Poor diversification

The 3 months correlation between Phillips and Marathon is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Phillips 66 and Marathon Petroleum Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marathon Petroleum Corp and Phillips 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 Phillips 66 are associated (or correlated) with Marathon Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marathon Petroleum Corp has no effect on the direction of Phillips i.e., Phillips and Marathon Petroleum go up and down completely randomly.

Pair Corralation between Phillips and Marathon Petroleum

Assuming the 90 days horizon Phillips 66 is expected to generate 1.06 times more return on investment than Marathon Petroleum. However, Phillips is 1.06 times more volatile than Marathon Petroleum Corp. It trades about -0.08 of its potential returns per unit of risk. Marathon Petroleum Corp is currently generating about -0.23 per unit of risk. If you would invest  12,226  in Phillips 66 on September 15, 2024 and sell it today you would lose (358.00) from holding Phillips 66 or give up 2.93% of portfolio value over 90 days.

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

Phillips 66  vs.  Marathon Petroleum Corp

Phillips 66

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Phillips 66 are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Phillips is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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. Despite nearly stable basic indicators, Marathon Petroleum is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Phillips and Marathon Petroleum

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

The idea behind Phillips 66 and Marathon Petroleum 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.