Correlation Between Valero Energy and Travelers Companies

Can any of the company-specific risk be diversified away by investing in both Valero Energy and Travelers Companies 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 Travelers Companies 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 Travelers Companies, you can compare the effects of market volatilities on Valero Energy and Travelers Companies 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 Travelers Companies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Valero Energy and Travelers Companies.

Diversification Opportunities for Valero Energy and Travelers Companies

0.44

Correlation Coefficient

Valero Energy  Travelers Companies

Very weak diversification

The 3 months correlation between Valero and Travelers is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Valero Energy and The Travelers Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Travelers Companies 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 Travelers Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Travelers Companies has no effect on the direction of Valero Energy i.e., Valero Energy and Travelers Companies go up and down completely randomly.

Pair Corralation between Valero Energy and Travelers Companies

Assuming the 90 days trading horizon Valero Energy is expected to generate 4.08 times less return on investment than Travelers Companies. But when comparing it to its historical volatility, Valero Energy is 1.28 times less risky than Travelers Companies. It trades about 0.03 of its potential returns per unit of risk. The Travelers Companies is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  283,003  in The Travelers Companies on September 24, 2024 and sell it today you would earn a total of  242,246  from holding The Travelers Companies or generate 85.6% return on investment over 90 days.

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

Valero Energy  vs.  The Travelers Companies

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.

The Travelers Companies

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Travelers Companies are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Travelers Companies showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Valero Energy and Travelers Companies

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

The idea behind Valero Energy and The Travelers Companies 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.