Correlation Between Valvoline and Sunoco LP

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

By analyzing existing cross correlation between Valvoline and Sunoco LP, you can compare the effects of market volatilities on Valvoline and Sunoco LP 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 Valvoline with a short position of Sunoco LP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Valvoline and Sunoco LP.

Diversification Opportunities for Valvoline and Sunoco LP

0.15

Correlation Coefficient

Valvoline  Sunoco LP

Average diversification

The 3 months correlation between Valvoline and Sunoco is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Valvoline and Sunoco LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunoco LP and Valvoline 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 Valvoline are associated (or correlated) with Sunoco LP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunoco LP has no effect on the direction of Valvoline i.e., Valvoline and Sunoco LP go up and down completely randomly.

Pair Corralation between Valvoline and Sunoco LP

Considering the 90-day investment horizon Valvoline is expected to under-perform the Sunoco LP. In addition to that, Valvoline is 1.5 times more volatile than Sunoco LP. It trades about -0.02 of its total potential returns per unit of risk. Sunoco LP is currently generating about 0.23 per unit of volatility. If you would invest  5,015  in Sunoco LP on December 30, 2024 and sell it today you would earn a total of  905.00  from holding Sunoco LP or generate 18.05% return on investment over 90 days.

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

Valvoline  vs.  Sunoco LP

Valvoline

Risk-Adjusted Performance

Very Weak

Over the last 90 days Valvoline has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Valvoline is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Sunoco LP

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sunoco LP are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Sunoco LP displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Valvoline and Sunoco LP

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

The idea behind Valvoline and Sunoco LP 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.