Correlation Between Petroleo Brasileiro and Entergy

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

Diversification Opportunities for Petroleo Brasileiro and Entergy

-0.38

Correlation Coefficient

Petroleo Brasileiro  Entergy

Very good diversification

The 3 months correlation between Petroleo and Entergy is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Entergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entergy 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 Entergy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entergy has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Entergy go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Entergy

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to under-perform the Entergy. In addition to that, Petroleo Brasileiro is 1.28 times more volatile than Entergy. It trades about -0.25 of its total potential returns per unit of risk. Entergy is currently generating about -0.06 per unit of volatility. If you would invest  7,300  in Entergy on September 25, 2024 and sell it today you would lose (150.00) from holding Entergy or give up 2.05% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Entergy

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 latest conflicting performance, the Stock's fundamental drivers remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Entergy

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Entergy are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Entergy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petroleo Brasileiro and Entergy

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

The idea behind Petroleo Brasileiro Petrobras and Entergy 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.