Correlation Between Petroleo Brasileiro and CDAX Index

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

Diversification Opportunities for Petroleo Brasileiro and CDAX Index

-0.12

Correlation Coefficient

Petroleo Brasileiro  CDAX Index

Good diversification

The 3 months correlation between Petroleo and CDAX is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and CDAX Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CDAX Index 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 CDAX Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CDAX Index has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and CDAX Index go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and CDAX Index

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to under-perform the CDAX Index. In addition to that, Petroleo Brasileiro is 2.92 times more volatile than CDAX Index. It trades about -0.12 of its total potential returns per unit of risk. CDAX Index is currently generating about 0.18 per unit of volatility. If you would invest  166,709  in CDAX Index on September 29, 2024 and sell it today you would earn a total of  3,625  from holding CDAX Index or generate 2.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  CDAX Index

Pair Trading with Petroleo Brasileiro and CDAX Index

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

The idea behind Petroleo Brasileiro Petrobras and CDAX Index 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.