Correlation Between Petroleo Brasileiro and Basic Materials

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

Diversification Opportunities for Petroleo Brasileiro and Basic Materials

0.21

Correlation Coefficient

Petroleo Brasileiro  Basic Materials

Modest diversification

The 3 months correlation between Petroleo and Basic is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Basic Materials Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basic Materials Ultr 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 Basic Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basic Materials Ultr has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Basic Materials go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Basic Materials

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to generate 1.31 times more return on investment than Basic Materials. However, Petroleo Brasileiro is 1.31 times more volatile than Basic Materials Ultrasector. It trades about -0.04 of its potential returns per unit of risk. Basic Materials Ultrasector is currently generating about -0.1 per unit of risk. If you would invest  1,419  in Petroleo Brasileiro Petrobras on September 17, 2024 and sell it today you would lose (58.00) from holding Petroleo Brasileiro Petrobras or give up 4.09% of portfolio value over 90 days.

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

Petroleo Brasileiro Petrobras  vs.  Basic Materials Ultrasector

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 recent stock price agitation, may contribute to short-term losses for the retail investors.

Basic Materials Ultr

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Basic Materials Ultrasector has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Petroleo Brasileiro and Basic Materials

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

The idea behind Petroleo Brasileiro Petrobras and Basic Materials Ultrasector 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.