Correlation Between Valero Energy and ICON PLC

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

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

Diversification Opportunities for Valero Energy and ICON PLC

0.81

Correlation Coefficient

Valero Energy ICON PLC

Very poor diversification

The 3 months correlation between Valero and ICON PLC is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Valero Energy and ICON PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ICON PLC 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 ICON PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ICON PLC has no effect on the direction of Valero Energy i.e., Valero Energy and ICON PLC go up and down completely randomly.

Pair Corralation between Valero Energy and ICON PLC

Considering the 90-day investment horizon Valero Energy is expected to generate 1.13 times more return on investment than ICON PLC. However, Valero Energy is 1.13 times more volatile than ICON PLC. It trades about 0.06 of its potential returns per unit of risk. ICON PLC is currently generating about 0.01 per unit of risk. If you would invest  7,200  in Valero Energy on December 23, 2022 and sell it today you would earn a total of  5,736  from holding Valero Energy or generate 79.66% return on investment over 90 days.

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

Valero Energy  vs.  ICON PLC

Valero Energy

Valero Performance

5 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in Valero Energy are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile essential indicators, Valero Energy may actually be approaching a critical reversion point that can send shares even higher in April 2023.

ICON PLC

ICON PLC Performance

5 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in ICON PLC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent essential indicators, ICON PLC may actually be approaching a critical reversion point that can send shares even higher in April 2023.

Pair Trading with Valero Energy and ICON PLC

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

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The idea behind Valero Energy and ICON PLC 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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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 Money Managers module to screen money managers from public funds and ETFs managed around the world.