Correlation Between Valero Energy and Petrleo Brasileiro

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

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

Diversification Opportunities for Valero Energy and Petrleo Brasileiro

0.65

Correlation Coefficient

Valero Energy  Petrleo Brasileiro

Poor diversification

The 3 months correlation between Valero and Petrleo is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Valero Energy and Petrleo Brasileiro SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petrleo Brasileiro 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 Petrleo Brasileiro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petrleo Brasileiro has no effect on the direction of Valero Energy i.e., Valero Energy and Petrleo Brasileiro go up and down completely randomly.

Pair Corralation between Valero Energy and Petrleo Brasileiro

Assuming the 90 days trading horizon Valero Energy is expected to generate 1.04 times less return on investment than Petrleo Brasileiro. In addition to that, Valero Energy is 1.36 times more volatile than Petrleo Brasileiro SA. It trades about 0.09 of its total potential returns per unit of risk. Petrleo Brasileiro SA is currently generating about 0.12 per unit of volatility. If you would invest  3,687  in Petrleo Brasileiro SA on September 12, 2024 and sell it today you would earn a total of  332.00  from holding Petrleo Brasileiro SA or generate 9.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Valero Energy  vs.  Petrleo Brasileiro SA

Valero Energy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Valero Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Valero Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Petrleo Brasileiro

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Petrleo Brasileiro SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Petrleo Brasileiro may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Valero Energy and Petrleo Brasileiro

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

The idea behind Valero Energy and Petrleo Brasileiro SA 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.