Correlation Between Lichen China and Petróleo Brasileiro
Can any of the company-specific risk be diversified away by investing in both Lichen China and Petróleo 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 Lichen China and Petróleo Brasileiro into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lichen China Limited and Petrleo Brasileiro SA, you can compare the effects of market volatilities on Lichen China and Petróleo 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 Lichen China with a short position of Petróleo Brasileiro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lichen China and Petróleo Brasileiro.
Diversification Opportunities for Lichen China and Petróleo Brasileiro
0.06 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Lichen and Petróleo is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Lichen China Limited and Petrleo Brasileiro SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petróleo Brasileiro and Lichen China 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 Lichen China Limited are associated (or correlated) with Petróleo Brasileiro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petróleo Brasileiro has no effect on the direction of Lichen China i.e., Lichen China and Petróleo Brasileiro go up and down completely randomly.
Pair Corralation between Lichen China and Petróleo Brasileiro
Given the investment horizon of 90 days Lichen China Limited is expected to generate 4.53 times more return on investment than Petróleo Brasileiro. However, Lichen China is 4.53 times more volatile than Petrleo Brasileiro SA. It trades about 0.05 of its potential returns per unit of risk. Petrleo Brasileiro SA is currently generating about 0.04 per unit of risk. If you would invest 136.00 in Lichen China Limited on August 28, 2024 and sell it today you would earn a total of 48.00 from holding Lichen China Limited or generate 35.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lichen China Limited vs. Petrleo Brasileiro SA
Performance |
| Timeline |
| Lichen China Limited |
| Petróleo Brasileiro |
Lichen China and Petróleo Brasileiro Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lichen China and Petróleo Brasileiro
The main advantage of trading using opposite Lichen China and Petróleo Brasileiro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lichen China position performs unexpectedly, Petróleo 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 Petróleo Brasileiro will offset losses from the drop in Petróleo Brasileiro's long position.| Lichen China vs. Genpact Limited | Lichen China vs. Broadridge Financial Solutions | Lichen China vs. First Advantage Corp | Lichen China vs. Franklin Covey |
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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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