Correlation Between Valero Energy and Cosan SA

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

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

Diversification Opportunities for Valero Energy and Cosan SA

0.03

Correlation Coefficient

Valero Energy  Cosan SA

Significant diversification

The 3 months correlation between Valero and Cosan is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Valero Energy and Cosan SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cosan SA ADR 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 Cosan SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cosan SA ADR has no effect on the direction of Valero Energy i.e., Valero Energy and Cosan SA go up and down completely randomly.

Pair Corralation between Valero Energy and Cosan SA

Considering the 90-day investment horizon Valero Energy is expected to generate 0.63 times more return on investment than Cosan SA. However, Valero Energy is 1.58 times less risky than Cosan SA. It trades about 0.1 of its potential returns per unit of risk. Cosan SA ADR is currently generating about 0.02 per unit of risk. If you would invest  11,862  in Valero Energy on December 28, 2024 and sell it today you would earn a total of  1,461  from holding Valero Energy or generate 12.32% return on investment over 90 days.

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

Valero Energy  vs.  Cosan SA ADR

Valero Energy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Valero Energy are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady essential indicators, Valero Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Cosan SA ADR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cosan SA ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Cosan SA is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Valero Energy and Cosan SA

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

The idea behind Valero Energy and Cosan SA ADR 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.