Correlation Between Iberdrola and Petroleo Brasileiro
Can any of the company-specific risk be diversified away by investing in both Iberdrola 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 Iberdrola and Petroleo Brasileiro into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Iberdrola SA and Petroleo Brasileiro SA, you can compare the effects of market volatilities on Iberdrola 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 Iberdrola with a short position of Petroleo Brasileiro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iberdrola and Petroleo Brasileiro.
Diversification Opportunities for Iberdrola and Petroleo Brasileiro
-0.72 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Iberdrola and Petroleo is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Iberdrola SA and Petroleo Brasileiro SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petroleo Brasileiro and Iberdrola 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 Iberdrola SA 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 Iberdrola i.e., Iberdrola and Petroleo Brasileiro go up and down completely randomly.
Pair Corralation between Iberdrola and Petroleo Brasileiro
Assuming the 90 days trading horizon Iberdrola SA is expected to generate 0.35 times more return on investment than Petroleo Brasileiro. However, Iberdrola SA is 2.86 times less risky than Petroleo Brasileiro. It trades about 0.13 of its potential returns per unit of risk. Petroleo Brasileiro SA is currently generating about -0.16 per unit of risk. If you would invest 1,472 in Iberdrola SA on January 26, 2025 and sell it today you would earn a total of 74.00 from holding Iberdrola SA or generate 5.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Iberdrola SA vs. Petroleo Brasileiro SA
Performance |
| Timeline |
| Iberdrola SA |
| Petroleo Brasileiro |
Iberdrola and Petroleo Brasileiro Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Iberdrola and Petroleo Brasileiro
The main advantage of trading using opposite Iberdrola and Petroleo Brasileiro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iberdrola 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.The idea behind Iberdrola SA and Petroleo Brasileiro 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.| Petroleo Brasileiro vs. Repsol | Petroleo Brasileiro vs. Grenergy Renovables SA | Petroleo Brasileiro vs. Ebro Foods | Petroleo Brasileiro vs. Prosegur |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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