Correlation Between Petroleo Brasileiro and Universal Music

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

Diversification Opportunities for Petroleo Brasileiro and Universal Music

-0.11

Correlation Coefficient

Petroleo Brasileiro  Universal Music

Good diversification

The 3 months correlation between Petroleo and Universal is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Petroleo Brasileiro Petrobras and Universal Music Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Music Group 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 Universal Music. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Music Group has no effect on the direction of Petroleo Brasileiro i.e., Petroleo Brasileiro and Universal Music go up and down completely randomly.

Pair Corralation between Petroleo Brasileiro and Universal Music

Considering the 90-day investment horizon Petroleo Brasileiro Petrobras is expected to under-perform the Universal Music. In addition to that, Petroleo Brasileiro is 1.38 times more volatile than Universal Music Group. It trades about -0.06 of its total potential returns per unit of risk. Universal Music Group is currently generating about 0.14 per unit of volatility. If you would invest  2,252  in Universal Music Group on September 20, 2024 and sell it today you would earn a total of  241.00  from holding Universal Music Group or generate 10.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Petroleo Brasileiro Petrobras  vs.  Universal Music Group

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.

Universal Music Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Music Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Universal Music may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Petroleo Brasileiro and Universal Music

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

The idea behind Petroleo Brasileiro Petrobras and Universal Music Group 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.