Correlation Between Petrleo Brasileiro and Banco Mercantil

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

Diversification Opportunities for Petrleo Brasileiro and Banco Mercantil

-0.27

Correlation Coefficient

Petrleo Brasileiro  Banco Mercantil

Very good diversification

The 3 months correlation between Petrleo and Banco is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Petrleo Brasileiro SA and Banco Mercantil do in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Mercantil do 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 Banco Mercantil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco Mercantil do has no effect on the direction of Petrleo Brasileiro i.e., Petrleo Brasileiro and Banco Mercantil go up and down completely randomly.

Pair Corralation between Petrleo Brasileiro and Banco Mercantil

Assuming the 90 days trading horizon Petrleo Brasileiro is expected to generate 21.86 times less return on investment than Banco Mercantil. But when comparing it to its historical volatility, Petrleo Brasileiro SA is 2.72 times less risky than Banco Mercantil. It trades about 0.0 of its potential returns per unit of risk. Banco Mercantil do is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3,945  in Banco Mercantil do on September 1, 2024 and sell it today you would earn a total of  25.00  from holding Banco Mercantil do or generate 0.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Petrleo Brasileiro SA  vs.  Banco Mercantil do

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 comparatively stable basic indicators, Petrleo Brasileiro is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Banco Mercantil do

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Mercantil do are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Banco Mercantil is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Petrleo Brasileiro and Banco Mercantil

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

The idea behind Petrleo Brasileiro SA and Banco Mercantil do 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.