Correlation Between Petroleo Brasileiro and KEI Industries

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

Diversification Opportunities for Petroleo Brasileiro and KEI Industries

0.42

Correlation Coefficient

Petroleo Brasileiro  KEI Industries

Very weak diversification

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

Pair Corralation between Petroleo Brasileiro and KEI Industries

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to under-perform the KEI Industries. But the stock apears to be less risky and, when comparing its historical volatility, Petroleo Brasileiro Petrobras is 1.38 times less risky than KEI Industries. The stock trades about -0.06 of its potential returns per unit of risk. The KEI Industries Limited is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  421,085  in KEI Industries Limited on September 22, 2024 and sell it today you would lose (4,460) from holding KEI Industries Limited or give up 1.06% of portfolio value over 90 days.

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

Petroleo Brasileiro Petrobras  vs.  KEI Industries Limited

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.

KEI Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KEI Industries Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, KEI Industries is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Petroleo Brasileiro and KEI Industries

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

The idea behind Petroleo Brasileiro Petrobras and KEI Industries Limited 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.