Correlation Between Travelers Companies and Valero Energy

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

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

Diversification Opportunities for Travelers Companies and Valero Energy

0.44

Correlation Coefficient

Travelers Companies  Valero Energy

Very weak diversification

The 3 months correlation between Travelers and Valero is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding The Travelers Companies and Valero Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valero Energy and Travelers Companies 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 The Travelers Companies 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 Travelers Companies i.e., Travelers Companies and Valero Energy go up and down completely randomly.

Pair Corralation between Travelers Companies and Valero Energy

Assuming the 90 days trading horizon The Travelers Companies is expected to generate 0.95 times more return on investment than Valero Energy. However, The Travelers Companies is 1.05 times less risky than Valero Energy. It trades about 0.05 of its potential returns per unit of risk. Valero Energy is currently generating about 0.02 per unit of risk. If you would invest  350,187  in The Travelers Companies on September 24, 2024 and sell it today you would earn a total of  175,062  from holding The Travelers Companies or generate 49.99% return on investment over 90 days.

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

The Travelers Companies  vs.  Valero Energy

The Travelers Companies

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Travelers Companies are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Travelers Companies showed solid returns over the last few months and may actually be approaching a breakup point.

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 Travelers Companies and Valero Energy

The main advantage of trading using opposite Travelers Companies and Valero Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Travelers Companies 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 The Travelers Companies 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.

Check out your portfolio center.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.