Correlation Between Valero Energy and Phillips

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

By analyzing existing cross correlation between Valero Energy and Phillips 66, you can compare the effects of market volatilities on Valero Energy and Phillips 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 Phillips. Check out your portfolio center. Please also check ongoing floating volatility patterns of Valero Energy and Phillips.

Diversification Opportunities for Valero Energy and Phillips

0.76

Correlation Coefficient

Valero Energy  Phillips

Poor diversification

The 3 months correlation between Valero and Phillips is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Valero Energy and Phillips 66 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Phillips 66 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 Phillips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Phillips 66 has no effect on the direction of Valero Energy i.e., Valero Energy and Phillips go up and down completely randomly.

Pair Corralation between Valero Energy and Phillips

Considering the 90-day investment horizon Valero Energy is expected to generate 1.13 times more return on investment than Phillips. However, Valero Energy is 1.13 times more volatile than Phillips 66. It trades about -0.02 of its potential returns per unit of risk. Phillips 66 is currently generating about -0.04 per unit of risk. If you would invest  13,795  in Valero Energy on November 28, 2024 and sell it today you would lose (429.00) from holding Valero Energy or give up 3.11% of portfolio value over 90 days.

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

Valero Energy  vs.  Phillips 66

Valero Energy

Risk-Adjusted Performance

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 very healthy essential indicators, Valero Energy is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Phillips 66

Risk-Adjusted Performance

Very Weak

Over the last 90 days Phillips 66 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Phillips is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Valero Energy and Phillips

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

The idea behind Valero Energy and Phillips 66 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.