Correlation Between Valero Energy and Schlumberger

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

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

Diversification Opportunities for Valero Energy and Schlumberger

0.65

Correlation Coefficient

Valero Energy  Schlumberger

Poor diversification

The 3 months correlation between Valero and Schlumberger is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Valero Energy and Schlumberger Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schlumberger Limited 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 Schlumberger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schlumberger Limited has no effect on the direction of Valero Energy i.e., Valero Energy and Schlumberger go up and down completely randomly.

Pair Corralation between Valero Energy and Schlumberger

Assuming the 90 days trading horizon Valero Energy is expected to generate 0.88 times more return on investment than Schlumberger. However, Valero Energy is 1.14 times less risky than Schlumberger. It trades about -0.11 of its potential returns per unit of risk. Schlumberger Limited is currently generating about -0.11 per unit of risk. If you would invest  268,606  in Valero Energy on September 23, 2024 and sell it today you would lose (26,589) from holding Valero Energy or give up 9.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.62%
Values	Daily Returns

Valero Energy  vs.  Schlumberger Limited

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 fairly strong basic indicators, Valero Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Schlumberger Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schlumberger Limited 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.

Pair Trading with Valero Energy and Schlumberger

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

The idea behind Valero Energy and Schlumberger Limited 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.