Correlation Between Petroleo Brasileiro and Danone SA

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

Diversification Opportunities for Petroleo Brasileiro and Danone SA

0.01

Correlation Coefficient

Petroleo Brasileiro  Danone SA

Significant diversification

The 3 months correlation between Petroleo and Danone is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Danone SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danone SA 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 Danone SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Danone SA has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Danone SA go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Danone SA

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to generate about the same return on investment as Danone SA. However, Petroleo Brasileiro is 1.56 times more volatile than Danone SA. It trades about -0.03 of its potential returns per unit of risk. Danone SA is currently producing about -0.05 per unit of risk. If you would invest  7,143  in Danone SA on September 19, 2024 and sell it today you would lose (258.00) from holding Danone SA or give up 3.61% of portfolio value over 90 days.

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

Petroleo Brasileiro Petrobras  vs.  Danone SA

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.

Danone SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Petroleo Brasileiro and Danone SA

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

The idea behind Petroleo Brasileiro Petrobras and Danone SA 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.