Stock Analysis on Net

Valero Energy Corp. (NYSE:VLO)

Capital Asset Pricing Model (CAPM)

Microsoft Excel

Capital asset pricing model (CAPM) indicates what should be the expected or required rate of return on risky assets like Valero Energy Corp. common stock.


Rates of Return

Valero Energy Corp., monthly rates of return

Microsoft Excel
Valero Energy Corp. (VLO) Standard & Poor’s 500 (S&P 500)
t Date PriceVLO,t1 DividendVLO,t1 RVLO,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2019 $87.82 2,704.10
1. Feb 28, 2019 $81.56 $0.90 -6.10% 2,784.49 2.97%
2. Mar 31, 2019 $84.83 4.01% 2,834.40 1.79%
3. Apr 30, 2019 $90.66 6.87% 2,945.83 3.93%
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2023 $125.36 $1.02 -0.49% 4,567.80 8.92%
59. Dec 31, 2023 $130.00 3.70% 4,769.83 4.42%
Average (R): 2.02% 1.11%
Standard deviation: 14.24% 5.31%
Valero Energy Corp. (VLO) Standard & Poor’s 500 (S&P 500)
t Date PriceVLO,t1 DividendVLO,t1 RVLO,t2 PriceS&P 500,t RS&P 500,t3
Jan 31, 2019 $87.82 2,704.10
1. Feb 28, 2019 $81.56 $0.90 -6.10% 2,784.49 2.97%
2. Mar 31, 2019 $84.83 4.01% 2,834.40 1.79%
3. Apr 30, 2019 $90.66 6.87% 2,945.83 3.93%
4. May 31, 2019 $70.40 $0.90 -21.35% 2,752.06 -6.58%
5. Jun 30, 2019 $85.61 21.61% 2,941.76 6.89%
6. Jul 31, 2019 $85.25 -0.42% 2,980.38 1.31%
7. Aug 31, 2019 $75.28 $0.90 -10.64% 2,926.46 -1.81%
8. Sep 30, 2019 $85.24 13.23% 2,976.74 1.72%
9. Oct 31, 2019 $96.98 13.77% 3,037.56 2.04%
10. Nov 30, 2019 $95.49 $0.90 -0.61% 3,140.98 3.40%
11. Dec 31, 2019 $93.65 -1.93% 3,230.78 2.86%
12. Jan 31, 2020 $84.31 -9.97% 3,225.52 -0.16%
13. Feb 29, 2020 $66.25 $0.98 -20.26% 2,954.22 -8.41%
14. Mar 31, 2020 $45.36 -31.53% 2,584.59 -12.51%
15. Apr 30, 2020 $63.35 39.66% 2,912.43 12.68%
16. May 31, 2020 $66.64 $0.98 6.74% 3,044.31 4.53%
17. Jun 30, 2020 $58.82 -11.73% 3,100.29 1.84%
18. Jul 31, 2020 $56.23 -4.40% 3,271.12 5.51%
19. Aug 31, 2020 $52.59 $0.98 -4.73% 3,500.31 7.01%
20. Sep 30, 2020 $43.32 -17.63% 3,363.00 -3.92%
21. Oct 31, 2020 $38.61 -10.87% 3,269.96 -2.77%
22. Nov 30, 2020 $53.77 $0.98 41.80% 3,621.63 10.75%
23. Dec 31, 2020 $56.57 5.21% 3,756.07 3.71%
24. Jan 31, 2021 $56.43 -0.25% 3,714.24 -1.11%
25. Feb 28, 2021 $76.98 $0.98 38.15% 3,811.15 2.61%
26. Mar 31, 2021 $71.60 -6.99% 3,972.89 4.24%
27. Apr 30, 2021 $73.96 3.30% 4,181.17 5.24%
28. May 31, 2021 $80.40 $0.98 10.03% 4,204.11 0.55%
29. Jun 30, 2021 $78.08 -2.89% 4,297.50 2.22%
30. Jul 31, 2021 $66.97 -14.23% 4,395.26 2.27%
31. Aug 31, 2021 $66.31 $0.98 0.48% 4,522.68 2.90%
32. Sep 30, 2021 $70.57 6.42% 4,307.54 -4.76%
33. Oct 31, 2021 $77.33 9.58% 4,605.38 6.91%
34. Nov 30, 2021 $66.94 $0.98 -12.17% 4,567.00 -0.83%
35. Dec 31, 2021 $75.11 12.20% 4,766.18 4.36%
36. Jan 31, 2022 $82.97 10.46% 4,515.55 -5.26%
37. Feb 28, 2022 $83.51 $0.98 1.83% 4,373.94 -3.14%
38. Mar 31, 2022 $101.54 21.59% 4,530.41 3.58%
39. Apr 30, 2022 $111.48 9.79% 4,131.93 -8.80%
40. May 31, 2022 $129.60 $0.98 17.13% 4,132.15 0.01%
41. Jun 30, 2022 $106.28 -17.99% 3,785.38 -8.39%
42. Jul 31, 2022 $110.77 4.22% 4,130.29 9.11%
43. Aug 31, 2022 $117.12 $0.98 6.62% 3,955.00 -4.24%
44. Sep 30, 2022 $106.85 -8.77% 3,585.62 -9.34%
45. Oct 31, 2022 $125.55 17.50% 3,871.98 7.99%
46. Nov 30, 2022 $133.62 $0.98 7.21% 4,080.11 5.38%
47. Dec 31, 2022 $126.86 -5.06% 3,839.50 -5.90%
48. Jan 31, 2023 $140.03 10.38% 4,076.60 6.18%
49. Feb 28, 2023 $131.73 $1.02 -5.20% 3,970.15 -2.61%
50. Mar 31, 2023 $139.60 5.97% 4,109.31 3.51%
51. Apr 30, 2023 $114.67 -17.86% 4,169.48 1.46%
52. May 31, 2023 $107.04 $1.02 -5.76% 4,179.83 0.25%
53. Jun 30, 2023 $117.30 9.59% 4,376.86 4.71%
54. Jul 31, 2023 $128.91 9.90% 4,588.96 4.85%
55. Aug 31, 2023 $129.90 $1.02 1.56% 4,507.66 -1.77%
56. Sep 30, 2023 $141.71 9.09% 4,288.05 -4.87%
57. Oct 31, 2023 $127.00 -10.38% 4,193.80 -2.20%
58. Nov 30, 2023 $125.36 $1.02 -0.49% 4,567.80 8.92%
59. Dec 31, 2023 $130.00 3.70% 4,769.83 4.42%
Average (R): 2.02% 1.11%
Standard deviation: 14.24% 5.31%

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1 Data in US$ per share of common stock, adjusted for splits and stock dividends.

2 Rate of return on common stock of VLO during period t

3 Rate of return on S&P 500 (the market portfolio proxy) during period t


Variance and Covariance

Valero Energy Corp., calculation of variance and covariance of returns

Microsoft Excel
t Date RVLO,t RS&P 500,t (RVLO,tRVLO)2 (RS&P 500,tRS&P 500)2 (RVLO,tRVLO)×(RS&P 500,tRS&P 500)
1. Feb 28, 2019 -6.10% 2.97% 66.05 3.49 -15.17
2. Mar 31, 2019 4.01% 1.79% 3.94 0.47 1.36
3. Apr 30, 2019 6.87% 3.93% 23.51 7.98 13.70
. . . . . . .
. . . . . . .
. . . . . . .
58. Nov 30, 2023 -0.49% 8.92% 6.31 61.03 -19.62
59. Dec 31, 2023 3.70% 4.42% 2.81 11.00 5.56
Total (Σ): 11,760.38 1,634.30 2,513.35
t Date RVLO,t RS&P 500,t (RVLO,tRVLO)2 (RS&P 500,tRS&P 500)2 (RVLO,tRVLO)×(RS&P 500,tRS&P 500)
1. Feb 28, 2019 -6.10% 2.97% 66.05 3.49 -15.17
2. Mar 31, 2019 4.01% 1.79% 3.94 0.47 1.36
3. Apr 30, 2019 6.87% 3.93% 23.51 7.98 13.70
4. May 31, 2019 -21.35% -6.58% 546.55 59.04 179.63
5. Jun 30, 2019 21.61% 6.89% 383.43 33.49 113.32
6. Jul 31, 2019 -0.42% 1.31% 5.97 0.04 -0.51
7. Aug 31, 2019 -10.64% -1.81% 160.35 8.50 36.91
8. Sep 30, 2019 13.23% 1.72% 125.59 0.37 6.86
9. Oct 31, 2019 13.77% 2.04% 138.04 0.88 11.01
10. Nov 30, 2019 -0.61% 3.40% 6.93 5.28 -6.05
11. Dec 31, 2019 -1.93% 2.86% 15.61 3.07 -6.93
12. Jan 31, 2020 -9.97% -0.16% 143.93 1.61 15.22
13. Feb 29, 2020 -20.26% -8.41% 496.50 90.57 212.06
14. Mar 31, 2020 -31.53% -12.51% 1,126.00 185.44 456.96
15. Apr 30, 2020 39.66% 12.68% 1,416.52 134.06 435.78
16. May 31, 2020 6.74% 4.53% 22.25 11.71 16.14
17. Jun 30, 2020 -11.73% 1.84% 189.30 0.54 -10.08
18. Jul 31, 2020 -4.40% 5.51% 41.31 19.40 -28.31
19. Aug 31, 2020 -4.73% 7.01% 45.62 34.82 -39.86
20. Sep 30, 2020 -17.63% -3.92% 386.15 25.29 98.82
21. Oct 31, 2020 -10.87% -2.77% 166.32 15.00 49.94
22. Nov 30, 2020 41.80% 10.75% 1,582.36 93.10 383.81
23. Dec 31, 2020 5.21% 3.71% 10.13 6.79 8.30
24. Jan 31, 2021 -0.25% -1.11% 5.16 4.93 5.04
25. Feb 28, 2021 38.15% 2.61% 1,305.35 2.26 54.31
26. Mar 31, 2021 -6.99% 4.24% 81.23 9.85 -28.28
27. Apr 30, 2021 3.30% 5.24% 1.62 17.11 5.26
28. May 31, 2021 10.03% 0.55% 64.14 0.31 -4.46
29. Jun 30, 2021 -2.89% 2.22% 24.10 1.24 -5.48
30. Jul 31, 2021 -14.23% 2.27% 264.15 1.37 -19.00
31. Aug 31, 2021 0.48% 2.90% 2.39 3.22 -2.77
32. Sep 30, 2021 6.42% -4.76% 19.36 34.37 -25.80
33. Oct 31, 2021 9.58% 6.91% 57.08 33.74 43.89
34. Nov 30, 2021 -12.17% -0.83% 201.43 3.76 27.52
35. Dec 31, 2021 12.20% 4.36% 103.66 10.60 33.14
36. Jan 31, 2022 10.46% -5.26% 71.25 40.51 -53.72
37. Feb 28, 2022 1.83% -3.14% 0.04 17.99 0.81
38. Mar 31, 2022 21.59% 3.58% 382.84 6.11 48.36
39. Apr 30, 2022 9.79% -8.80% 60.30 98.04 -76.89
40. May 31, 2022 17.13% 0.01% 228.29 1.21 -16.63
41. Jun 30, 2022 -17.99% -8.39% 400.71 90.21 190.12
42. Jul 31, 2022 4.22% 9.11% 4.84 64.09 17.62
43. Aug 31, 2022 6.62% -4.24% 21.10 28.62 -24.57
44. Sep 30, 2022 -8.77% -9.34% 116.48 109.11 112.73
45. Oct 31, 2022 17.50% 7.99% 239.55 47.34 106.49
46. Nov 30, 2022 7.21% 5.38% 26.88 18.23 22.13
47. Dec 31, 2022 -5.06% -5.90% 50.17 49.04 49.60
48. Jan 31, 2023 10.38% 6.18% 69.85 25.70 42.37
49. Feb 28, 2023 -5.20% -2.61% 52.17 13.82 26.85
50. Mar 31, 2023 5.97% 3.51% 15.61 5.76 9.48
51. Apr 30, 2023 -17.86% 1.46% 395.29 0.13 -7.13
52. May 31, 2023 -5.76% 0.25% 60.66 0.74 6.68
53. Jun 30, 2023 9.59% 4.71% 57.17 13.02 27.28
54. Jul 31, 2023 9.90% 4.85% 62.00 13.99 29.45
55. Aug 31, 2023 1.56% -1.77% 0.22 8.28 1.34
56. Sep 30, 2023 9.09% -4.87% 49.95 35.73 -42.25
57. Oct 31, 2023 -10.38% -2.20% 153.86 10.92 40.98
58. Nov 30, 2023 -0.49% 8.92% 6.31 61.03 -19.62
59. Dec 31, 2023 3.70% 4.42% 2.81 11.00 5.56
Total (Σ): 11,760.38 1,634.30 2,513.35

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VarianceVLO = Σ(RVLO,tRVLO)2 ÷ (59 – 1)
= 11,760.38 ÷ (59 – 1)
= 202.77

VarianceS&P 500 = Σ(RS&P 500,tRS&P 500)2 ÷ (59 – 1)
= 1,634.30 ÷ (59 – 1)
= 28.18

CovarianceVLO, S&P 500 = Σ(RVLO,tRVLO)×(RS&P 500,tRS&P 500) ÷ (59 – 1)
= 2,513.35 ÷ (59 – 1)
= 43.33


Systematic Risk (β) Estimation

Microsoft Excel
VarianceVLO 202.77
VarianceS&P 500 28.18
CovarianceVLO, S&P 500 43.33
Correlation coefficientVLO, S&P 5001 0.57
βVLO2 1.54
αVLO3 0.32%

Calculations

1 Correlation coefficientVLO, S&P 500
= CovarianceVLO, S&P 500 ÷ (Standard deviationVLO × Standard deviationS&P 500)
= 43.33 ÷ (14.24% × 5.31%)
= 0.57

2 βVLO
= CovarianceVLO, S&P 500 ÷ VarianceS&P 500
= 43.33 ÷ 28.18
= 1.54

3 αVLO
= AverageVLO – βVLO × AverageS&P 500
= 2.02%1.54 × 1.11%
= 0.32%


Expected Rate of Return

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.65%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk (β) of Valero Energy Corp. common stock βVLO 1.54
 
Expected rate of return on Valero Energy Corp. common stock3 E(RVLO) 18.70%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 E(RVLO) = RF + βVLO [E(RM) – RF]
= 4.65% + 1.54 [13.79%4.65%]
= 18.70%