Correlation Between Petroleo Brasileiro and Richmond Minerals

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

Diversification Opportunities for Petroleo Brasileiro and Richmond Minerals

0.17

Correlation Coefficient

Petroleo Brasileiro  Richmond Minerals

Average diversification

The 3 months correlation between Petroleo and Richmond is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Richmond Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Richmond Minerals 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 Richmond Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Richmond Minerals has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Richmond Minerals go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Richmond Minerals

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to generate 0.48 times more return on investment than Richmond Minerals. However, Petroleo Brasileiro Petrobras is 2.06 times less risky than Richmond Minerals. It trades about -0.1 of its potential returns per unit of risk. Richmond Minerals is currently generating about -0.23 per unit of risk. If you would invest  1,313  in Petroleo Brasileiro Petrobras on October 1, 2024 and sell it today you would lose (52.00) from holding Petroleo Brasileiro Petrobras or give up 3.96% of portfolio value over 90 days.

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

Petroleo Brasileiro Petrobras  vs.  Richmond Minerals

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.

Richmond Minerals

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Richmond Minerals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Richmond Minerals showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petroleo Brasileiro and Richmond Minerals

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

The idea behind Petroleo Brasileiro Petrobras and Richmond Minerals 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.