Correlation Between International Petroleum and Petroleo Brasileiro
Can any of the company-specific risk be diversified away by investing in both International Petroleum 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 International Petroleum and Petroleo Brasileiro into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Petroleum and Petroleo Brasileiro Petrobras, you can compare the effects of market volatilities on International Petroleum 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 International Petroleum with a short position of Petroleo Brasileiro. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Petroleum and Petroleo Brasileiro.
Diversification Opportunities for International Petroleum and Petroleo Brasileiro
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between International and Petroleo is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding International Petroleum and Petroleo Brasileiro Petrobras in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petroleo Brasileiro and International Petroleum 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 International Petroleum 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 International Petroleum i.e., International Petroleum and Petroleo Brasileiro go up and down completely randomly.
Pair Corralation between International Petroleum and Petroleo Brasileiro
Assuming the 90 days horizon International Petroleum is expected to under-perform the Petroleo Brasileiro. In addition to that, International Petroleum is 1.31 times more volatile than Petroleo Brasileiro Petrobras. It trades about -0.05 of its total potential returns per unit of risk. Petroleo Brasileiro Petrobras is currently generating about 0.01 per unit of volatility. If you would invest 1,431 in Petroleo Brasileiro Petrobras on September 3, 2024 and sell it today you would lose (3.00) from holding Petroleo Brasileiro Petrobras or give up 0.21% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Petroleum vs. Petroleo Brasileiro Petrobras
Performance |
| Timeline |
| International Petroleum |
| Petroleo Brasileiro |
International Petroleum and Petroleo Brasileiro Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Petroleum and Petroleo Brasileiro
The main advantage of trading using opposite International Petroleum and Petroleo Brasileiro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Petroleum 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.| International Petroleum vs. 1st NRG Corp | International Petroleum vs. Otto Energy Limited | International Petroleum vs. Razor Energy Corp | International Petroleum vs. Prospera Energy |
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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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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