Correlation Between Petrleo Brasileiro and Equinor ASA

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

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

Diversification Opportunities for Petrleo Brasileiro and Equinor ASA

0.72

Correlation Coefficient

Petrleo Brasileiro  Equinor ASA

Poor diversification

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

Pair Corralation between Petrleo Brasileiro and Equinor ASA

Assuming the 90 days horizon Petrleo Brasileiro SA is expected to under-perform the Equinor ASA. But the stock apears to be less risky and, when comparing its historical volatility, Petrleo Brasileiro SA is 1.28 times less risky than Equinor ASA. The stock trades about -0.07 of its potential returns per unit of risk. The Equinor ASA ADR is currently generating about -0.05 of returns per unit of risk over similar time horizon. 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

Petrleo Brasileiro SA  vs.  Equinor ASA ADR

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.

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.

Pair Trading with Petrleo Brasileiro and Equinor ASA

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

The idea behind Petrleo Brasileiro SA and Equinor ASA ADR 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.