Correlation Between Petroleo Brasileiro and Small Cap

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

Diversification Opportunities for Petroleo Brasileiro and Small Cap

-0.2

Correlation Coefficient

Petroleo Brasileiro  Small Cap

Good diversification

The 3 months correlation between Petroleo and Small is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Small Cap Value Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value 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 Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Value has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Small Cap go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Small Cap

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to under-perform the Small Cap. In addition to that, Petroleo Brasileiro is 1.25 times more volatile than Small Cap Value Profund. It trades about -0.06 of its total potential returns per unit of risk. Small Cap Value Profund is currently generating about 0.09 per unit of volatility. If you would invest  8,498  in Small Cap Value Profund on September 17, 2024 and sell it today you would earn a total of  611.00  from holding Small Cap Value Profund or generate 7.19% return on investment over 90 days.

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

Petroleo Brasileiro Petrobras  vs.  Small Cap Value Profund

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.

Small Cap Value

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Value Profund are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Small Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Petroleo Brasileiro and Small Cap

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

The idea behind Petroleo Brasileiro Petrobras and Small Cap Value Profund 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.