Correlation Between Petroleo Brasileiro and LAM THAO

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

Diversification Opportunities for Petroleo Brasileiro and LAM THAO

0.35

Correlation Coefficient

Petroleo Brasileiro  LAM THAO

Weak diversification

The 3 months correlation between Petroleo and LAM is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and LAM THAO FERTI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LAM THAO FERTI 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 LAM THAO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LAM THAO FERTI has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and LAM THAO go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and LAM THAO

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to under-perform the LAM THAO. In addition to that, Petroleo Brasileiro is 1.09 times more volatile than LAM THAO FERTI. It trades about -0.08 of its total potential returns per unit of risk. LAM THAO FERTI is currently generating about -0.01 per unit of volatility. If you would invest  2,300,000  in LAM THAO FERTI on September 28, 2024 and sell it today you would lose (30,000) from holding LAM THAO FERTI or give up 1.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  LAM THAO FERTI

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 unsteady 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.

LAM THAO FERTI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LAM THAO FERTI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, LAM THAO is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Petroleo Brasileiro and LAM THAO

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

The idea behind Petroleo Brasileiro Petrobras and LAM THAO FERTI 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .