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

0.66

Correlation Coefficient

Valero Energy  Phillips

Poor diversification

The 3 months correlation between Valero and Phillips is 0.66. 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

Assuming the 90 days trading horizon Valero Energy is expected to generate 1.7 times less return on investment than Phillips. But when comparing it to its historical volatility, Valero Energy is 1.15 times less risky than Phillips. It trades about 0.03 of its potential returns per unit of risk. Phillips 66 is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  27,400  in Phillips 66 on September 29, 2024 and sell it today you would earn a total of  6,668  from holding Phillips 66 or generate 24.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	81.37%
Values	Daily Returns

Valero Energy  vs.  Phillips 66

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. Despite somewhat 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.

Phillips 66

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Phillips 66 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Phillips is not utilizing all of its potentials. The current 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.

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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.