Correlation Between SPDR Series and Valero Energy

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

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

Diversification Opportunities for SPDR Series and Valero Energy

0.67

Correlation Coefficient

SPDR Series  Valero Energy

Poor diversification

The 3 months correlation between SPDR and Valero is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Series Trust and Valero Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valero Energy and SPDR Series 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 SPDR Series Trust are associated (or correlated) with Valero Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valero Energy has no effect on the direction of SPDR Series i.e., SPDR Series and Valero Energy go up and down completely randomly.

Pair Corralation between SPDR Series and Valero Energy

Assuming the 90 days trading horizon SPDR Series Trust is expected to generate 0.96 times more return on investment than Valero Energy. However, SPDR Series Trust is 1.04 times less risky than Valero Energy. It trades about -0.02 of its potential returns per unit of risk. Valero Energy is currently generating about -0.11 per unit of risk. If you would invest  272,225  in SPDR Series Trust on October 5, 2024 and sell it today you would lose (7,925) from holding SPDR Series Trust or give up 2.91% of portfolio value over 90 days.

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

SPDR Series Trust  vs.  Valero Energy

SPDR Series Trust

Risk-Adjusted Performance

0 of 100

Very Weak

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

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. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with SPDR Series and Valero Energy

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

The idea behind SPDR Series Trust and Valero Energy 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.