Correlation Between BP PLC and Petroleo Brasileiro
Can any of the company-specific risk be diversified away by investing in both BP PLC and Petroleo Brasileiro 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 BP PLC and Petroleo Brasileiro into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BP PLC ADR and Petroleo Brasileiro Petrobras, you can compare the effects of market volatilities on BP PLC and Petroleo Brasileiro 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 BP PLC with a short position of Petroleo Brasileiro. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP PLC and Petroleo Brasileiro.
Diversification Opportunities for BP PLC and Petroleo Brasileiro
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BP PLC and Petroleo is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding BP PLC ADR and Petroleo Brasileiro Petrobras in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petroleo Brasileiro and BP PLC 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 BP PLC ADR are associated (or correlated) with Petroleo Brasileiro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petroleo Brasileiro has no effect on the direction of BP PLC i.e., BP PLC and Petroleo Brasileiro go up and down completely randomly.
Pair Corralation between BP PLC and Petroleo Brasileiro
Allowing for the 90-day total investment horizon BP PLC ADR is expected to under-perform the Petroleo Brasileiro. In addition to that, BP PLC is 1.11 times more volatile than Petroleo Brasileiro Petrobras. It trades about -0.07 of its total potential returns per unit of risk. Petroleo Brasileiro Petrobras is currently generating about 0.24 per unit of volatility. If you would invest 1,379 in Petroleo Brasileiro Petrobras on August 27, 2024 and sell it today you would earn a total of 111.00 from holding Petroleo Brasileiro Petrobras or generate 8.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BP PLC ADR vs. Petroleo Brasileiro Petrobras
Performance |
| Timeline |
| BP PLC ADR |
| Petroleo Brasileiro |
BP PLC and Petroleo Brasileiro Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BP PLC and Petroleo Brasileiro
The main advantage of trading using opposite BP PLC and Petroleo Brasileiro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BP PLC position performs unexpectedly, Petroleo Brasileiro 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 Petroleo Brasileiro will offset losses from the drop in Petroleo Brasileiro's long position.| BP PLC vs. TotalEnergies SE ADR | BP PLC vs. Chevron Corp | BP PLC vs. Exxon Mobil Corp | BP PLC vs. Equinor ASA ADR |
Check out your portfolio center.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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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