Correlation Between Valero Energy and Citigroup

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

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

Diversification Opportunities for Valero Energy and Citigroup

0.59

Correlation Coefficient

Valero Energy  Citigroup

Very weak diversification

The 3 months correlation between Valero and Citigroup is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Valero Energy and Citigroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citigroup 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 Citigroup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citigroup has no effect on the direction of Valero Energy i.e., Valero Energy and Citigroup go up and down completely randomly.

Pair Corralation between Valero Energy and Citigroup

Assuming the 90 days trading horizon Valero Energy is expected to generate 1.43 times more return on investment than Citigroup. However, Valero Energy is 1.43 times more volatile than Citigroup. It trades about 0.07 of its potential returns per unit of risk. Citigroup is currently generating about 0.03 per unit of risk. If you would invest  236,528  in Valero Energy on December 27, 2024 and sell it today you would earn a total of  26,372  from holding Valero Energy or generate 11.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Valero Energy  vs.  Citigroup

Valero Energy

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Valero Energy are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Valero Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Citigroup

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong primary indicators, Citigroup is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Valero Energy and Citigroup

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

The idea behind Valero Energy and Citigroup 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.