Correlation Between Petroleo Brasileiro and Alfa Holdings

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

Diversification Opportunities for Petroleo Brasileiro and Alfa Holdings

0.27

Correlation Coefficient

Petroleo Brasileiro  Alfa Holdings

Modest diversification

The 3 months correlation between Petroleo and Alfa is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Alfa Holdings SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alfa Holdings 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 Alfa Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alfa Holdings SA has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Alfa Holdings go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Alfa Holdings

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to generate 0.5 times more return on investment than Alfa Holdings. However, Petroleo Brasileiro Petrobras is 2.01 times less risky than Alfa Holdings. It trades about 0.01 of its potential returns per unit of risk. Alfa Holdings SA is currently generating about -0.15 per unit of risk. If you would invest  1,453  in Petroleo Brasileiro Petrobras on September 13, 2024 and sell it today you would earn a total of  7.00  from holding Petroleo Brasileiro Petrobras or generate 0.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Alfa Holdings 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 recent stock price agitation, may contribute to short-term losses for the retail investors.

Alfa Holdings SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alfa Holdings SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Petroleo Brasileiro and Alfa Holdings

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

The idea behind Petroleo Brasileiro Petrobras and Alfa Holdings 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.