Correlation Between Valero Energy and Clean Energy

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

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

Diversification Opportunities for Valero Energy and Clean Energy

0.05

Correlation Coefficient

Valero Energy  Clean Energy

Significant diversification

The 3 months correlation between Valero and Clean is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Valero Energy and Clean Energy Fuels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clean Energy Fuels 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 Clean Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clean Energy Fuels has no effect on the direction of Valero Energy i.e., Valero Energy and Clean Energy go up and down completely randomly.

Pair Corralation between Valero Energy and Clean Energy

Assuming the 90 days horizon Valero Energy is expected to under-perform the Clean Energy. But the stock apears to be less risky and, when comparing its historical volatility, Valero Energy is 2.52 times less risky than Clean Energy. The stock trades about -0.39 of its potential returns per unit of risk. The Clean Energy Fuels is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  255.00  in Clean Energy Fuels on September 22, 2024 and sell it today you would lose (9.00) from holding Clean Energy Fuels or give up 3.53% of portfolio value over 90 days.

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

Valero Energy  vs.  Clean Energy Fuels

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Clean Energy Fuels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Clean Energy Fuels has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Clean Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Valero Energy and Clean Energy

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

The idea behind Valero Energy and Clean Energy Fuels 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.