Correlation Between Valero Energy and Goldman Sachs

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

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

Diversification Opportunities for Valero Energy and Goldman Sachs

0.81

Correlation Coefficient

Valero Energy  Goldman Sachs

Very poor diversification

The 3 months correlation between Valero and Goldman is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Valero Energy and The Goldman Sachs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goldman Sachs 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 Goldman Sachs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goldman Sachs has no effect on the direction of Valero Energy i.e., Valero Energy and Goldman Sachs go up and down completely randomly.

Pair Corralation between Valero Energy and Goldman Sachs

Assuming the 90 days trading horizon Valero Energy is expected to generate 3.95 times less return on investment than Goldman Sachs. But when comparing it to its historical volatility, Valero Energy is 1.45 times less risky than Goldman Sachs. It trades about 0.06 of its potential returns per unit of risk. The Goldman Sachs is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  929,374  in The Goldman Sachs on September 17, 2024 and sell it today you would earn a total of  249,226  from holding The Goldman Sachs or generate 26.82% return on investment over 90 days.

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

Valero Energy  vs.  The Goldman Sachs

Valero Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Valero Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Valero Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Goldman Sachs

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Goldman Sachs are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Goldman Sachs showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Valero Energy and Goldman Sachs

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

The idea behind Valero Energy and The Goldman Sachs 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.