Correlation Between APA and Petro Rio

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

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

Diversification Opportunities for APA and Petro Rio

0.5

Correlation Coefficient

APA  Petro Rio

Very weak diversification

The 3 months correlation between APA and Petro is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding APA Corp. and Petro Rio SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petro Rio SA and APA 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 APA Corporation are associated (or correlated) with Petro Rio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petro Rio SA has no effect on the direction of APA i.e., APA and Petro Rio go up and down completely randomly.

Pair Corralation between APA and Petro Rio

Assuming the 90 days trading horizon APA Corporation is expected to generate 1.28 times more return on investment than Petro Rio. However, APA is 1.28 times more volatile than Petro Rio SA. It trades about -0.03 of its potential returns per unit of risk. Petro Rio SA is currently generating about -0.07 per unit of risk. If you would invest  13,270  in APA Corporation on September 23, 2024 and sell it today you would lose (816.00) from holding APA Corporation or give up 6.15% of portfolio value over 90 days.

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

APA Corp.  vs.  Petro Rio SA

APA Corporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days APA Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, APA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Petro Rio SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petro Rio SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with APA and Petro Rio

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

The idea behind APA Corporation and Petro Rio SA 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.