Correlation Between Petroleo Brasileiro and IShares Edge

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

By analyzing existing cross correlation between Petroleo Brasileiro Petrobras and iShares Edge MSCI, you can compare the effects of market volatilities on Petroleo Brasileiro and IShares Edge 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 Petroleo Brasileiro with a short position of IShares Edge. Check out your portfolio center. Please also check ongoing floating volatility patterns of Petroleo Brasileiro and IShares Edge.

Diversification Opportunities for Petroleo Brasileiro and IShares Edge

0.27

Correlation Coefficient

Petroleo Brasileiro  IShares Edge

Modest diversification

The 3 months correlation between Petroleo and IShares is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and iShares Edge MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Edge MSCI and Petroleo 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 Petroleo Brasileiro Petrobras are associated (or correlated) with IShares Edge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Edge MSCI has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and IShares Edge go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and IShares Edge

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to under-perform the IShares Edge. In addition to that, Petroleo Brasileiro is 1.55 times more volatile than iShares Edge MSCI. It trades about -0.05 of its total potential returns per unit of risk. iShares Edge MSCI is currently generating about 0.04 per unit of volatility. If you would invest  4,732  in iShares Edge MSCI on September 30, 2024 and sell it today you would earn a total of  107.00  from holding iShares Edge MSCI or generate 2.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  iShares Edge MSCI

Petroleo Brasileiro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petroleo Brasileiro Petrobras has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, Petroleo Brasileiro is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

iShares Edge MSCI

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Edge MSCI are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, IShares Edge is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Petroleo Brasileiro and IShares Edge

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

The idea behind Petroleo Brasileiro Petrobras and iShares Edge MSCI 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .