Correlation Between Valero Energy and General Motors

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

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

Diversification Opportunities for Valero Energy and General Motors

0.73

Correlation Coefficient

Valero Energy  General Motors

Poor diversification

The 3 months correlation between Valero and General is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Valero Energy and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors 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 General Motors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Motors has no effect on the direction of Valero Energy i.e., Valero Energy and General Motors go up and down completely randomly.

Pair Corralation between Valero Energy and General Motors

Assuming the 90 days trading horizon Valero Energy is expected to generate 4.15 times less return on investment than General Motors. But when comparing it to its historical volatility, Valero Energy is 1.87 times less risky than General Motors. It trades about 0.05 of its potential returns per unit of risk. General Motors is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  6,881  in General Motors on September 4, 2024 and sell it today you would earn a total of  1,471  from holding General Motors or generate 21.38% return on investment over 90 days.

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

Valero Energy  vs.  General Motors

Valero Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Valero Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

General Motors

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, General Motors sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Valero Energy and General Motors

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

The idea behind Valero Energy and General Motors 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.