Correlation Between Valero Energy and BP Prudhoe
Can any of the company-specific risk be diversified away by investing in both Valero Energy and BP Prudhoe 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 BP Prudhoe into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Valero Energy and BP Prudhoe Bay, you can compare the effects of market volatilities on Valero Energy and BP Prudhoe 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 BP Prudhoe. Check out your portfolio center. Please also check ongoing floating volatility patterns of Valero Energy and BP Prudhoe.
Diversification Opportunities for Valero Energy and BP Prudhoe
-0.07 | Correlation Coefficient |
Good diversification
The 3 months correlation between Valero and BPT is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Valero Energy and BP Prudhoe Bay in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP Prudhoe Bay 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 BP Prudhoe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP Prudhoe Bay has no effect on the direction of Valero Energy i.e., Valero Energy and BP Prudhoe go up and down completely randomly.
Pair Corralation between Valero Energy and BP Prudhoe
Considering the 90-day investment horizon Valero Energy is expected to generate 10.57 times less return on investment than BP Prudhoe. But when comparing it to its historical volatility, Valero Energy is 4.31 times less risky than BP Prudhoe. It trades about 0.1 of its potential returns per unit of risk. BP Prudhoe Bay is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 224.00 in BP Prudhoe Bay on January 17, 2024 and sell it today you would earn a total of 63.00 from holding BP Prudhoe Bay or generate 28.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Valero Energy vs. BP Prudhoe Bay
Performance |
| Timeline |
| Valero Energy |
| BP Prudhoe Bay |
Valero Energy and BP Prudhoe Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Valero Energy and BP Prudhoe
The main advantage of trading using opposite Valero Energy and BP Prudhoe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Valero Energy position performs unexpectedly, BP Prudhoe 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 BP Prudhoe will offset losses from the drop in BP Prudhoe's long position.The idea behind Valero Energy and BP Prudhoe Bay 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.| BP Prudhoe vs. Summit Midstream Partners | BP Prudhoe vs. Mirage Energy Corp | BP Prudhoe vs. Teekay Tankers | BP Prudhoe vs. International Seaways |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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