Correlation Between Valvoline and CDW Corp

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

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

Diversification Opportunities for Valvoline and CDW Corp

0.89

Correlation Coefficient

Valvoline  CDW Corp

Very poor diversification

The 3 months correlation between Valvoline and CDW is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Valvoline and CDW Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CDW Corp and Valvoline 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 Valvoline are associated (or correlated) with CDW Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CDW Corp has no effect on the direction of Valvoline i.e., Valvoline and CDW Corp go up and down completely randomly.

Pair Corralation between Valvoline and CDW Corp

Considering the 90-day investment horizon Valvoline is expected to generate 1.3 times more return on investment than CDW Corp. However, Valvoline is 1.3 times more volatile than CDW Corp. It trades about 0.03 of its potential returns per unit of risk. CDW Corp is currently generating about -0.02 per unit of risk. If you would invest  4,240  in Valvoline on January 29, 2024 and sell it today you would earn a total of  46.00  from holding Valvoline or generate 1.08% return on investment over 90 days.

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

Valvoline  vs.  CDW Corp

Valvoline

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Valvoline are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Valvoline showed solid returns over the last few months and may actually be approaching a breakup point.

CDW Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CDW Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, CDW Corp is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Valvoline and CDW Corp

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

The idea behind Valvoline and CDW Corp 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.