Correlation Between Equinor ASA and Petrleo Brasileiro

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

By analyzing existing cross correlation between Equinor ASA ADR and Petrleo Brasileiro SA, you can compare the effects of market volatilities on Equinor ASA and Petrleo Brasileiro 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 Equinor ASA with a short position of Petrleo Brasileiro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equinor ASA and Petrleo Brasileiro.

Diversification Opportunities for Equinor ASA and Petrleo Brasileiro

0.72

Correlation Coefficient

Equinor ASA  Petrleo Brasileiro

Poor diversification

The 3 months correlation between Equinor and Petrleo is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Equinor ASA ADR and Petrleo Brasileiro SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petrleo Brasileiro and Equinor ASA 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 Equinor ASA ADR are associated (or correlated) with Petrleo Brasileiro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petrleo Brasileiro has no effect on the direction of Equinor ASA i.e., Equinor ASA and Petrleo Brasileiro go up and down completely randomly.

Pair Corralation between Equinor ASA and Petrleo Brasileiro

Given the investment horizon of 90 days Equinor ASA ADR is expected to generate 1.28 times more return on investment than Petrleo Brasileiro. However, Equinor ASA is 1.28 times more volatile than Petrleo Brasileiro SA. It trades about -0.05 of its potential returns per unit of risk. Petrleo Brasileiro SA is currently generating about -0.07 per unit of risk. If you would invest  2,435  in Equinor ASA ADR on September 17, 2024 and sell it today you would lose (200.00) from holding Equinor ASA ADR or give up 8.21% of portfolio value over 90 days.

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

Equinor ASA ADR  vs.  Petrleo Brasileiro SA

Equinor ASA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equinor ASA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest inconsistent performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Petrleo Brasileiro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petrleo Brasileiro SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Equinor ASA and Petrleo Brasileiro

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

The idea behind Equinor ASA ADR and Petrleo Brasileiro 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.