Correlation Between Petroleo Brasileiro and Sarfati

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

Diversification Opportunities for Petroleo Brasileiro and Sarfati

-0.31

Correlation Coefficient

Petroleo Brasileiro  Sarfati

Very good diversification

The 3 months correlation between Petroleo and Sarfati is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Sarfati in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sarfati 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 Sarfati. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sarfati has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Sarfati go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Sarfati

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to under-perform the Sarfati. In addition to that, Petroleo Brasileiro is 1.06 times more volatile than Sarfati. It trades about -0.14 of its total potential returns per unit of risk. Sarfati is currently generating about 0.14 per unit of volatility. If you would invest  402,000  in Sarfati on September 28, 2024 and sell it today you would earn a total of  17,300  from holding Sarfati or generate 4.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.0%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Sarfati

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 latest stock price agitation, may contribute to short-term losses for the retail investors.

Sarfati

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sarfati are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sarfati sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petroleo Brasileiro and Sarfati

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

The idea behind Petroleo Brasileiro Petrobras and Sarfati 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.