Correlation Between Valero Energy and Marathon Petroleum

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

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

Diversification Opportunities for Valero Energy and Marathon Petroleum

0.73

Correlation Coefficient

Valero Energy  Marathon Petroleum

Poor diversification

The 3 months correlation between Valero and Marathon is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Valero Energy 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 Valero Energy 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 Valero Energy 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 Valero Energy i.e., Valero Energy and Marathon Petroleum go up and down completely randomly.

Pair Corralation between Valero Energy and Marathon Petroleum

Assuming the 90 days horizon Valero Energy is expected to generate 0.87 times more return on investment than Marathon Petroleum. However, Valero Energy is 1.15 times less risky than Marathon Petroleum. It trades about -0.48 of its potential returns per unit of risk. Marathon Petroleum Corp is currently generating about -0.5 per unit of risk. If you would invest  13,588  in Valero Energy on September 23, 2024 and sell it today you would lose (1,944) from holding Valero Energy or give up 14.31% of portfolio value over 90 days.

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

Valero Energy  vs.  Marathon Petroleum Corp

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. Despite nearly stable basic indicators, Valero Energy 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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Valero Energy and Marathon Petroleum

The main advantage of trading using opposite Valero Energy and Marathon Petroleum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Valero Energy 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 Valero Energy 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.