Correlation Between Petroleo Brasileiro and Sinopec Shanghai

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

Diversification Opportunities for Petroleo Brasileiro and Sinopec Shanghai

0.15

Correlation Coefficient

Petroleo Brasileiro  Sinopec Shanghai

Average diversification

The 3 months correlation between Petroleo and Sinopec is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Sinopec Shanghai Petrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinopec Shanghai Pet 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 Sinopec Shanghai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinopec Shanghai Pet has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Sinopec Shanghai go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Sinopec Shanghai

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to under-perform the Sinopec Shanghai. But the stock apears to be less risky and, when comparing its historical volatility, Petroleo Brasileiro Petrobras is 4.27 times less risky than Sinopec Shanghai. The stock trades about -0.06 of its potential returns per unit of risk. The Sinopec Shanghai Petrochemical is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  13.00  in Sinopec Shanghai Petrochemical on September 17, 2024 and sell it today you would earn a total of  3.00  from holding Sinopec Shanghai Petrochemical or generate 23.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Sinopec Shanghai Petrochemical

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.

Sinopec Shanghai Pet

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sinopec Shanghai Petrochemical are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward-looking indicators, Sinopec Shanghai reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petroleo Brasileiro and Sinopec Shanghai

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

The idea behind Petroleo Brasileiro Petrobras and Sinopec Shanghai Petrochemical 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.