Correlation Between Valero Energy and US Bancorp

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

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

Diversification Opportunities for Valero Energy and US Bancorp

0.26

Correlation Coefficient

Valero Energy  US Bancorp

Modest diversification

The 3 months correlation between Valero and USB is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Valero Energy and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp 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 US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of Valero Energy i.e., Valero Energy and US Bancorp go up and down completely randomly.

Pair Corralation between Valero Energy and US Bancorp

Assuming the 90 days trading horizon Valero Energy is expected to under-perform the US Bancorp. But the stock apears to be less risky and, when comparing its historical volatility, Valero Energy is 1.11 times less risky than US Bancorp. The stock trades about -0.08 of its potential returns per unit of risk. The US Bancorp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  89,826  in US Bancorp on September 29, 2024 and sell it today you would earn a total of  8,685  from holding US Bancorp or generate 9.67% return on investment over 90 days.

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

Valero Energy  vs.  US Bancorp

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.

US Bancorp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in US Bancorp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, US Bancorp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Valero Energy and US Bancorp

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

The idea behind Valero Energy and US Bancorp 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.