Correlation Between Refinaria and Telecomunicaes Brasileiras

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

By analyzing existing cross correlation between Refinaria de Petrleos and Telecomunicaes Brasileiras SA, you can compare the effects of market volatilities on Refinaria and Telecomunicaes Brasileiras 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 Refinaria with a short position of Telecomunicaes Brasileiras. Check out your portfolio center. Please also check ongoing floating volatility patterns of Refinaria and Telecomunicaes Brasileiras.

Diversification Opportunities for Refinaria and Telecomunicaes Brasileiras

0.83

Correlation Coefficient

Refinaria  Telecomunicaes Brasileiras

Very poor diversification

The 3 months correlation between Refinaria and Telecomunicaes is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Refinaria de Petrleos and Telecomunicaes Brasileiras SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telecomunicaes Brasileiras and Refinaria 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 Refinaria de Petrleos are associated (or correlated) with Telecomunicaes Brasileiras. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telecomunicaes Brasileiras has no effect on the direction of Refinaria i.e., Refinaria and Telecomunicaes Brasileiras go up and down completely randomly.

Pair Corralation between Refinaria and Telecomunicaes Brasileiras

Assuming the 90 days trading horizon Refinaria de Petrleos is expected to generate 1.32 times more return on investment than Telecomunicaes Brasileiras. However, Refinaria is 1.32 times more volatile than Telecomunicaes Brasileiras SA. It trades about -0.06 of its potential returns per unit of risk. Telecomunicaes Brasileiras SA is currently generating about -0.16 per unit of risk. If you would invest  297.00  in Refinaria de Petrleos on September 30, 2024 and sell it today you would lose (41.00) from holding Refinaria de Petrleos or give up 13.8% of portfolio value over 90 days.

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

Refinaria de Petrleos  vs.  Telecomunicaes Brasileiras SA

Refinaria de Petrleos

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Refinaria de Petrleos has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Telecomunicaes Brasileiras

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Telecomunicaes Brasileiras SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Preferred Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Refinaria and Telecomunicaes Brasileiras

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

The idea behind Refinaria de Petrleos and Telecomunicaes Brasileiras SA 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.