Correlation Between Valero Energy and SAP SE

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

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

Diversification Opportunities for Valero Energy and SAP SE

-0.02

Correlation Coefficient

Valero Energy  SAP SE

Good diversification

The 3 months correlation between Valero and SAP is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Valero Energy and SAP SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SAP SE 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 SAP SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SAP SE has no effect on the direction of Valero Energy i.e., Valero Energy and SAP SE go up and down completely randomly.

Pair Corralation between Valero Energy and SAP SE

Assuming the 90 days trading horizon Valero Energy is expected to under-perform the SAP SE. In addition to that, Valero Energy is 1.41 times more volatile than SAP SE. It trades about -0.08 of its total potential returns per unit of risk. SAP SE is currently generating about 0.15 per unit of volatility. If you would invest  443,000  in SAP SE on September 29, 2024 and sell it today you would earn a total of  57,000  from holding SAP SE or generate 12.87% return on investment over 90 days.

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

Valero Energy  vs.  SAP SE

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.

SAP SE

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SAP SE are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SAP SE showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Valero Energy and SAP SE

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

The idea behind Valero Energy and SAP SE 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.