Correlation Between Valero Energy and Neste Oyj

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

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

Diversification Opportunities for Valero Energy and Neste Oyj

0.55

Correlation Coefficient

Valero Energy Neste Oyj

Very weak diversification

The 3 months correlation between Valero and Neste is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Valero Energy and Neste Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neste Oyj 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 Neste Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neste Oyj has no effect on the direction of Valero Energy i.e., Valero Energy and Neste Oyj go up and down completely randomly.

Pair Corralation between Valero Energy and Neste Oyj

Considering the 90-day investment horizon Valero Energy is expected to generate 1.25 times more return on investment than Neste Oyj. However, Valero Energy is 1.25 times more volatile than Neste Oyj. It trades about -0.04 of its potential returns per unit of risk. Neste Oyj is currently generating about -0.1 per unit of risk. If you would invest  13,144  in Valero Energy on February 28, 2023 and sell it today you would lose (1,762)  from holding Valero Energy or give up 13.41% of portfolio value over 90 days.

Valero Energy  vs.  Neste Oyj

Valero Energy

Valero Performance

0 of 100

Over the last 90 days Valero Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's essential indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm insiders.

Neste Oyj

Neste Performance

0 of 100

Over the last 90 days Neste Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in June 2023. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Valero Energy and Neste Oyj

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

The idea behind Valero Energy and Neste Oyj 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.

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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.