Correlation Between Petrleo Brasileiro and Controladora Vuela

Can any of the company-specific risk be diversified away by investing in both Petrleo Brasileiro and Controladora Vuela 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 Petrleo Brasileiro and Controladora Vuela into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Petrleo Brasileiro SA and Controladora Vuela Compaa, you can compare the effects of market volatilities on Petrleo Brasileiro and Controladora Vuela 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 Petrleo Brasileiro with a short position of Controladora Vuela. Check out your portfolio center. Please also check ongoing floating volatility patterns of Petrleo Brasileiro and Controladora Vuela.

Diversification Opportunities for Petrleo Brasileiro and Controladora Vuela

-0.07

Correlation Coefficient

Petrleo Brasileiro  Controladora Vuela

Good diversification

The 3 months correlation between Petrleo and Controladora is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Petrleo Brasileiro SA and Controladora Vuela Compaa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Controladora Vuela Compaa and Petrleo 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 Petrleo Brasileiro SA are associated (or correlated) with Controladora Vuela. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Controladora Vuela Compaa has no effect on the direction of Petrleo Brasileiro i.e., Petrleo Brasileiro and Controladora Vuela go up and down completely randomly.

Pair Corralation between Petrleo Brasileiro and Controladora Vuela

Assuming the 90 days trading horizon Petrleo Brasileiro SA is expected to under-perform the Controladora Vuela. But the stock apears to be less risky and, when comparing its historical volatility, Petrleo Brasileiro SA is 1.24 times less risky than Controladora Vuela. The stock trades about -0.02 of its potential returns per unit of risk. The Controladora Vuela Compaa is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,240  in Controladora Vuela Compaa on September 28, 2024 and sell it today you would earn a total of  326.00  from holding Controladora Vuela Compaa or generate 26.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Petrleo Brasileiro SA  vs.  Controladora Vuela Compaa

Petrleo Brasileiro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petrleo Brasileiro SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Petrleo Brasileiro is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Controladora Vuela Compaa

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Controladora Vuela Compaa are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating essential indicators, Controladora Vuela sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Petrleo Brasileiro and Controladora Vuela

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

The idea behind Petrleo Brasileiro SA and Controladora Vuela Compaa 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.