Correlation Between Valero Energy and Idemitsu Kosan

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

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

Diversification Opportunities for Valero Energy and Idemitsu Kosan

0.85

Correlation Coefficient

Valero Energy  Idemitsu Kosan

Very poor diversification

The 3 months correlation between Valero and Idemitsu is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Valero Energy and Idemitsu Kosan Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Idemitsu Kosan 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 Idemitsu Kosan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Idemitsu Kosan has no effect on the direction of Valero Energy i.e., Valero Energy and Idemitsu Kosan go up and down completely randomly.

Pair Corralation between Valero Energy and Idemitsu Kosan

Considering the 90-day investment horizon Valero Energy is expected to generate 0.53 times more return on investment than Idemitsu Kosan. However, Valero Energy is 1.89 times less risky than Idemitsu Kosan. It trades about -0.02 of its potential returns per unit of risk. Idemitsu Kosan Co is currently generating about -0.12 per unit of risk. If you would invest  16,849  in Valero Energy on January 25, 2024 and sell it today you would lose (149.00) from holding Valero Energy or give up 0.88% of portfolio value over 90 days.

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

Valero Energy  vs.  Idemitsu Kosan Co

Valero Energy

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Valero Energy are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting essential indicators, Valero Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Idemitsu Kosan

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Idemitsu Kosan Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Idemitsu Kosan showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Valero Energy and Idemitsu Kosan

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

The idea behind Valero Energy and Idemitsu Kosan Co 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.