Correlation Between Petroleo Brasileiro and Swedish Orphan

Can any of the company-specific risk be diversified away by investing in both Petroleo Brasileiro and Swedish Orphan 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 Swedish Orphan 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 Swedish Orphan Biovitrum, you can compare the effects of market volatilities on Petroleo Brasileiro and Swedish Orphan 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 Swedish Orphan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Petroleo Brasileiro and Swedish Orphan.

Diversification Opportunities for Petroleo Brasileiro and Swedish Orphan

-0.42

Correlation Coefficient

Petroleo Brasileiro  Swedish Orphan

Very good diversification

The 3 months correlation between Petroleo and Swedish is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Swedish Orphan Biovitrum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swedish Orphan Biovitrum 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 Swedish Orphan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swedish Orphan Biovitrum has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Swedish Orphan go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Swedish Orphan

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to under-perform the Swedish Orphan. But the stock apears to be less risky and, when comparing its historical volatility, Petroleo Brasileiro Petrobras is 1.38 times less risky than Swedish Orphan. The stock trades about -0.06 of its potential returns per unit of risk. The Swedish Orphan Biovitrum is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  2,822  in Swedish Orphan Biovitrum on September 23, 2024 and sell it today you would lose (178.00) from holding Swedish Orphan Biovitrum or give up 6.31% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.48%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Swedish Orphan Biovitrum

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.

Swedish Orphan Biovitrum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Swedish Orphan Biovitrum has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Swedish Orphan is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Petroleo Brasileiro and Swedish Orphan

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

The idea behind Petroleo Brasileiro Petrobras and Swedish Orphan Biovitrum 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.