Correlation Between United Airlines and Valero Energy

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

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

Diversification Opportunities for United Airlines and Valero Energy

0.08

Correlation Coefficient

United Airlines  Valero Energy

Significant diversification

The 3 months correlation between United and Valero is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding United Airlines Holdings and Valero Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valero Energy and United Airlines 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 United Airlines Holdings 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 United Airlines i.e., United Airlines and Valero Energy go up and down completely randomly.

Pair Corralation between United Airlines and Valero Energy

Assuming the 90 days trading horizon United Airlines Holdings is expected to generate 1.68 times more return on investment than Valero Energy. However, United Airlines is 1.68 times more volatile than Valero Energy. It trades about 0.31 of its potential returns per unit of risk. Valero Energy is currently generating about -0.08 per unit of risk. If you would invest  118,000  in United Airlines Holdings on October 8, 2024 and sell it today you would earn a total of  84,001  from holding United Airlines Holdings or generate 71.19% return on investment over 90 days.

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

United Airlines Holdings  vs.  Valero Energy

United Airlines Holdings

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in United Airlines Holdings are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, United Airlines 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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with United Airlines and Valero Energy

The main advantage of trading using opposite United Airlines and Valero Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Airlines 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 United Airlines Holdings 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.