Correlation Between Honest and Valero Energy

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

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

Diversification Opportunities for Honest and Valero Energy

0.47

Correlation Coefficient

Honest  Valero Energy

Very weak diversification

The 3 months correlation between Honest and Valero is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Honest Company and Valero Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valero Energy and Honest 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 Honest Company are associated (or correlated) with Valero Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valero Energy has no effect on the direction of Honest i.e., Honest and Valero Energy go up and down completely randomly.

Pair Corralation between Honest and Valero Energy

Given the investment horizon of 90 days Honest Company is expected to under-perform the Valero Energy. In addition to that, Honest is 1.81 times more volatile than Valero Energy. It trades about -0.43 of its total potential returns per unit of risk. Valero Energy is currently generating about -0.09 per unit of volatility. If you would invest  17,069  in Valero Energy on January 28, 2024 and sell it today you would lose (489.00) from holding Valero Energy or give up 2.86% of portfolio value over 90 days.

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

Honest Company  vs.  Valero Energy

Honest Company

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Honest Company are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Honest unveiled solid returns over the last few months and may actually be approaching a breakup point.

Valero Energy

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Valero Energy are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very weak essential indicators, Valero Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Honest and Valero Energy

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

The idea behind Honest Company and Valero Energy 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 the AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.