Yahoo Finance Correlation Analysis: Valero Stock, Oil Prices, and the Broad Market
Analyzing Updates that Impact Oil Refiner Valero Energy
What is the correlation coefficient?
In this series, we have analyzed Valero Energy’s (VLO) stock movements, refining margins, leverage, cash flows, and valuations. In this concluding part, we will examine the correlation between crude oil and VLO’s stock performance.
The correlation coefficient shows the relationship between two variables. A correlation coefficient value of 0 to 1 shows a positive correlation, 0 states no correlation, and a value of -1 to 0 shows an inverse correlation. We have considered 12 months’ price history of VLO, WTI (West Texas Intermediate), and the SPDR S&P 500 ETF (SPY).
Valero’s stock and oil price and broad market
The correlation coefficient of Valero (VLO) and WTI stands at 0.23. The correlation values for Valero (VLO) and oil prices indicate that in the past year, stock prices of VLO have moved in line with crude oil prices to a certain extent.
On the other hand, the correlation between the broad market indicator like the SPDR S&P 500 ETF (SPY) and Valero is high. The correlation coefficient of VLO and SPY is 0.61. This means an ~61% movement in Valero’s price can be explained by changes in the SPY.
This is due to the fact that SPY is an indicator of the broader economy. So, when an economy grows, the refining sector also grows. This is due to the fact that when the country’s economic health improves, the demand for fuel increases, leading to higher prices and volumes of refined products.
Valero’s peers Marathon Petroleum (MPC), Tesoro (TSO), and Phillips 66 (PSX) also show a stronger correlation to SPY. The iShares Russell 1000 Value ETF (IWD) has ~13% exposure to energy sector stocks. IWD has MPC, VLO, TSO, and PSX in its portfolio.
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